BHP’s shares fall as it counts the cost of tropical cyclone

Mining giant BHP Group has lowered its iron ore production guidance for the 2019 financial year because of disruptions caused by Tropical Cyclone Veronica in Australia in March. 

Shares in the group, which is the third largest constituent of the JSE’s top-40 index, fell 2.2% in Australia ahead of the JSE’s open.

BHP said that in the nine months to March, iron ore production was flat at 175-million tons. 

However, the group lowered its production guidance for the 2019 financial year to between 235-million and 239-million tons. The cyclone had dented production by 6-million to 8-million tons, BHP said.

As a result, unit costs for the full year had risen on lower volumes as well as “direct costs of remediation, increased demurrage, rehandle to manage stockyards and opportune maintenance at the mines during port downtime”.

“In addition, private royalties are also expected to be higher as a function of higher iron ore prices”.

Bloomberg reported on Wednesday that iron ore tumbled after Brazil’s Vale said it would restart operations at a major mine in the next 72 hours, alleviating concerns about a shortage and potentially offsetting supply losses seen by rivals in Australia.

Futures retreated as much as 3% in Singapore on prospects for the swift restart of the Brucutu mine following a local judge’s decision to allow the company to resume use of three tailings dams.

The iron ore market has been buffeted this year by a series of hits to supplies, with Vale shuttering operations following a fatal dam breach in January and Australian producers cutting output after cyclones and operational mishaps.

The “best estimate is that overall supply will remain tighter than expected at the end of 2018, but this will hit sentiment and futures prices,” said Tomas Gutierrez, an analyst at Kallanish Commodities. 

•With Bloomberg

hedleyn@businesslive.co.za