The biggest mining group in the world, BHP, has cited a number of factors for a slide in profits as it reports expected first-half losses for 2019. With ongoing trade disputes between the US and China listed as one of the major factors causing market disruption for vital metals and commodities, the future looks uncertain for even the biggest miners across the world.
Copper is one of the resources that has been hit hardest by a string of retaliatory tariff measures which have been shot back and forth between the US, a key ally of Australia where BHP has headquarters, and China, which is closest to some of its main trade routes.
Costs also rose thanks to disruptions to output worldwide, partially as a cause of the trade standoff, and also due to the resultant market hesitancy with some investors unwilling to commit over the long term while the picture remains unclear.
The performances of their biggest mines, which are in Australia and Chile, also ended up being one of the core reasons for losses. With BHP being one of the biggest companies so far to reveal their results, there may well be more bad news to follow as other mining companies show their hand.
Escondida in Chile is host to the biggest copper mine in the world, and a drop in the available quality of the ore they are able to extract means processing costs are ramping up, which is steadily eating into profits.
Since more ore is now needed to keep up with demand, this being combined with a drop in the price of copper worldwide, means BHP are in a tricky position as they try and salvage profits amid a weakening market outlook.
The latest results are taken from the six months up to the end of December 2018, where figures indicate an 8% drop, compared to figures from 2017, to $4.03billion. This was significantly off the estimates set by Vuma Financial, who predicted BHP would make $4.209billion in that period.
These figures are classed as the underlying profits based only on one-time gains and losses, and the result has been described as ‘sloppy’ by David Lennox, one of the analysts at the Sydney consulting firm Fat Prophets.
Lennox said he was ‘disappointed with the growth across the board, and that they are forecasting flat productivity gains for this year.’
The productivity being forecast by BHP has not met up to reality, and has been one of the key reasons profit results are less than the original estimations, as they thought any losses would be offset by cost savings. However, with the situation of their copper mine in Chile, they have now set their productivity gains as zero, which had already been cut down once back in August to $1billion, from an original $2billion.
These constantly changing scenarios are hardly likely to settle jitters in the market, with many investors previously estimating that mining looked like one of the more stable sectors, particularly in Australia where it seemed as if they were on the path to greater self-sufficiency.
Higher costs for extracting their iron ore, at $14.51 a ton instead of the forecast $14, also mean CEO Andrew Mackenzie will have his work cut out trying to usher in a new phase of growth.
However, he was bullish about company prospects, as he said structural changes should ‘lift production, make us safer and reduce unit costs.’