Western Australia and the December 2018 production report has sent the BHP Group Ltd (ASX: BHP) share price down more than 1% in early trading.
BHP is a world-leading resources company, extracting and processing minerals (like iron ore and copper), oil and gas, and has more than 62,000 employees and contractors, primarily in Australia and the Americas. Headquartered in Melbourne, BHP has shares listed on both the ASX and London Stock Exchange (BHP Billiton Plc).
BHP December 2018 Production Results
In the December 2018 half year BHP produced 63 Million Barrels of Oil Equivalent (MMboe) of petroleum, which was 1% lower than the December 2017 half year due to lower seasonal gas sales at the Bass Strait.
Copper production also fell by 1% compared to last year, to 825kt. Record throughput at Cerro Colorado and higher volumes at Spence as production returned to full capacity following a fire in September 2018, partially offset by lower volumes at Escondida due to lower copper grades.
BHP’s iron ore production increased by 2% to 119Mt. Volumes at Western Australia Iron Ore (WAIO) were impacted by a train derailment in November 2018. BHP said the total impact of unplanned production outages at WAIO, Olympic Dam and Spence will be cost approximately US$600 million.
Metallurgical coal production increased by 2% to 21Mt with record production at South Walker Creek. Energy coal production decreased by 5% as a result of the impact of mine sequence changes at Cerrejon.
BHP CEO Andrew Mackenzie commented, “Production in the first half was broadly in line with the prior period despite planned maintenance and outages.
“We completed the sale of our US shale assets and returned US$5.2 billion to shareholders through a share buy-back program, with a further US$5.2 billion to be returned as a special dividend on 30 January 2019.”
2019 guidance
Production guidance for the 2019 financial year remains unchanged for petroleum, iron ore, metallurgical coal and energy coal. Total copper production guidance increased to between 1,645kt to 1,740kt, which includes retaining Cerro Colorado.
Western Australia wants $300 million
BHP has been accused of not paying up to $300 million of royalties to the Western Australian government going back to 2004, according to the AFR.
A routine audit supposedly unearthed the underpayments where BHP allegedly used its Singapore marketing hub to pay for iron ore at a low price, resulting in lower royalties.
BHP said in response: “The long-standing deduction has been consistently audited and accepted by the Mines Department as part of BHP WA iron ore royalty calculations.
“It is concerning that previously audited and accepted payments to the government are now being revisited.”
Is the BHP share price a buy?
I am generally not a big fan of resource businesses because they don’t have much control of the prices they can sell their resources for. Therefore it’s hard for them to provide reliable profit or dividends for shareholders.
The best time to buy a cyclical business is at the bottom of the cycle, which was 2016 for BHP. Instead, I think it would be better to consider one of the below reliable ASX shares instead of BHP at the current prices.
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