Runaway Train and Production Hiccups Cost $600 Million for BHP Mining

BHP Group

One of the world’s premier mining companies has reported significant financial hits due to separate accidents that occurred during the last quarter of 2018. BHP Group (LON: BHP)(NYSE: BHP) announced today that between the derailment of a fully-loaded iron ore train along with unplanned production outages in their major copper mines the company lost over $600 million in proceeds, according to Reuters.

The Perth-based company revealed to investors that its second-quarter iron ore production dropped 9 percent, with the biggest production hiccups occurring at their Australian operations alongside being forced to derail a cargo train after it went off track en route to a major shipping hub. In total, the train wreck alone cost the company six million tones of iron ore. At the same time, copper production took a hit, alongside other facilities processing gold and uranium with technical issues due to plant outrages reducing the company’s volume by 45,000 tonnes.

The company also took a $700 million hit due to Chilean and Australian income tax payments increasing, alongside with a settlement of an Australian pricing dispute. However, the company assured its shareholders that despite the setbacks, it remains well poised to meet it’s production forecasts for the upcoming year.

“BHP informed its shareholders that it was on track to achieve its annual production forecasts across all its important commodities,” said the company, adding that its full-year productivity review will come soon. “Revised guidance will be provided in the December 2018 half-year financial results.”

Major analysts have become slightly more worried over the company’s prospects, not just in response to today’s news, but also in response to many setbacks facing the company over the past few months. Research analysts at Goldman Sachs Group ended up downgrading BHP Group from a “conviction-buy” to a “buy” rating last week. At the same time, Deutsche Bank cut shares of BHP from a “hold” rating to a “sell” in a research note published on January 8th. JPMorgan Chase & Co also cut shares of BHP Group from an “overweight” to a “neutral rating” all the way back on December 6th.

“As sector earnings and cash flows fade in 2019/20 we expect investors to increasingly focus on growth and capital allocation in the years ahead,” Deutsche Bank said. “BHP screens poorly on growth over the next 3-5 years and we expect FY21+ capex to lift above the company’s current ceiling of $8bn pa for FY19/20. While there are still some smaller assets in the portfolio that could be divested (Nickel West, selective and oil/gas and thermal coal assets) BHP’s strategy is pivoting from one of simplification to more growth focused.”

Shares of BHP Group on the NYSE dropped 3.5 percent today in response to the news

BHP Group Company Profile

BHP Group Limited discovers, acquires, develops, and markets natural resources worldwide. It operates through four segments: Petroleum, Copper, Iron Ore, and Coal. The company engages in the exploration, development, and production of oil and gas properties; and mining of copper, silver, lead, zinc, molybdenum, uranium, gold, and iron ores, as well as metallurgical and energy coal. – BHP Group