Analyst Note| Mathew Hodge, CFA |
No-moat BHP’s third-quarter fiscal 2022 production results were as expected. Western Australia Iron Ore production, which represents the bulk of BHP’s earnings, was flat on the previous corresponding period, or pcp, at around 67 million tonnes (100% basis). We think this is satisfactory, particularly given the impact COVID-19 has had on workforce availability both in Australia and overseas. Improved weather compared with the pcp and increased output from BHP’s South Flank mine offset the impact from COVID-19. South Flank produced at an annualised rate of 58 million tonnes during the quarter and remains on track to ramp up to full production of 80 million tonnes per year by 2023. We expect further impacts on staffing levels during the rest of calendar 2022 as Western Australia continues to manage the current COVID-19 outbreak. But we think this will reduce in significance given the worst of the state’s delayed outbreak appears to have passed. Despite inflation increasing costs across the mining industry, BHP has maintained good control of unit costs. The result generally met our expectations, and we make only minor changes to our model.