Iron ore and petroleum increasingly dominate BHP Billiton’s production, making some investors nervous, even as the world’s biggest miner posts record iron ore shipments.
First quarter iron ore production rose 24 per cent from a year earlier while petroleum production – natural gas and oil – increased 19 per cent.
Iron ore and petroleum represented 61 per cent of the group’s underlying earnings of $US32 billion ($A31.27 billion) for the last financial year, with that share set to rise this year.
The production result was widely regarded as a strong one, but came amid reports that Chinese economic growth was at two-year lows and China had pressured the world’s biggest iron ore producer Vale to agree to 10 per cent price cuts.
Iron ore prices hit record levels of about $US180 a tonne this year, compared to about $50 a decade ago.
Meanwhile, the petroleum production gains were driven by the $US15.1 billion acquisition of the Fayetteville and Petrohawk shale businesses in the US.
City Index chief market analyst Peter Esho said iron ore prices still had the potential to fall a long way, which would be a drag on BHP Billiton’s earnings.
“This is a great number, a great business, but it’s not as widespread as some would believe,” he told AAP.
“It’s still very heavily skewed towards iron ore and petroleum, if there’s large movements in pricing of those two segments, then you’re going to get that flowing through to BHP’s share price.”
Volumes for base metals fell, driven down partly by industrial action at its Escondida mine in Chile, BHP said.
Shares in BHP finished flat at $36.40 on Wednesday. The stock fell to a more than two-year low $33.86 on October 4 and has lost 20 per cent of its value this year. The S&P/ASX 200 has fallen 11 per cent so far this year.
“A lot of people say to us: BHP have record production across many divisions, its so large, its numbers look so good, why is it (share price) only up this much, why isn’t the market pleased?” Mr Esho said.
“The market is very wary of the earnings composition and exposure to iron ore and energy prices.”
BHP is not as sensitive to iron ore prices as rivals Rio Tinto and Fortescue Metals, about 70 per cent and 100 per cent reliant respectively on the commodity’s earnings, compared to BHP’s 42 per cent.
Both are ramping up production and, along with BHP, investing billions of dollars expanding the capacity of their iron ore mines.
The Petrohawk acquisition confirmed BHP’s interest in growing its petroleum business – a point of difference from Rio Tinto – which will supplant base metals as its second biggest earner.
Western Australian iron ore shipments rose to a record annualised rate of 173 million tonnes in the September quarter, 28 per cent higher than a year earlier, having benefitted from a duplication of the company’s railway lines, according to a statement.
China’s demand for the steelmaking commodity drove up iron ore production to 39.6 million tonnes quarter, up 24 per cent.
Metallurgical or coking coal volumes were weaker than for the prior corresponding quarter in 2010 due to the effects of recent floods but increased from the June quarter.
