Output from the world biggest copper mine, Escondida, will decline by 30 percent this fiscal year, BHP Billiton (BHP.AX: Quote) (BLT.L: Quote) said on Wednesday, as it posted falls in quarterly production across its main commodities.
The cut in its forecast for Escondida was part of a surprisingly large drop of 14 percent in copper output in the March quarter. Iron ore and aluminium production also fell, and the company said it stood ready to halt operations as demand weakened.
In the medium term, we expect that market conditions will remain uncertain, said BHP, which has been cutting production and shelving projects amid the worst global recession in decades.
All our operations will remain under review. We will continue to take appropriate actions in any business that is cash negative and set to remain so, or where there is lack of demand, the company added in its production report.
Last year, the Escondida mine in Chile produced 1.2 million tonnes of copper, or just under 5 percent of global output, so a 30 percent drop equates to about 360,000 tonnes.
BHP owns 57.5 percent of the mine. Rio Tinto Ltd/Plc RIO.A(RIO.L: Quote) holds 30 percent and Mitsubishi Corp (8058.T: Quote) 10 percent. Rio has agreed to sell China's Chinalco half its stake.
A BHP spokeswoman said the company had initially anticipated Escondida production to slip by around 20-25 percent in the company's fiscal year to June 30.
BHP said Escondida production had been hurt by lower ore grades and weaker milling operations, dragging its overall copper output down. Escondida has been steadily returning less copper since the June 2008 quarter, when BHP yielded 178,200 tonnes of metal in concentrate and 40,300 tonnes of cathode.
The copper number is particularly of concern because copper is a bellwether of the wider state of the industrial commodities sector, said Andrew Harrington, Sydney-based mining analyst for the Patersons brokerage.
In contrast, Rio last week showed a 33 percent gain in quarterly copper production, boosted by higher output from other mines it owns.
Escondida is still a problem for both BHP and Rio, said Gavin Wendt, a mining analyst for Fat Prophets in Sydney. But Rio was able to offset that nicely with a better performance from other non-Escondida related mines.
Copper, a manufacturing staple in everything from toilet taps to computer chips, has shed more than 6 percent of its value this week, though the price is up nearly 50 percent since January, leading some analysts to suggest the worst of the commodities bust is over.
Imports of refined copper to China, the world's bigest consumer and a big customer of Chilean mines, rose to a record 296,843 tonnes in March, Customs figures showed on Wednesday, a record amount for the second consecutive month.
A proposal by BHP to buy Rio with shares that was worth up to $193 billion at one point would have significantly lifted BHP's exposure to copper.
Speculation BHP may make a second offer resurfaced in the last week, though takeover regulations mean it must wait until November 27, 2009 unless it can get the support of Rio's board.
So far, BHP's biggest curtailment has been in nickel, with the closure of the Ravensthorpe nickel mine in Australia. Analysts say more cutbacks could follow in other commodities, such as alumina and aluminium.
Coal output in Australia already has turned down as Asian steel-mills hit hard times, with metallugical coal output down 25 percent from the previous quarter. Iron ore, another steel-making commodity, is also feeling the pinch.
BHP reported a 1 percent drop in iron ore production and 4 percent fall in aluminium year-on-year, down 2 percent and 4 percent respectively on the previous quarter. Nickel rose 10 percent year-on-year and was off 4 percent on the second quarter.
For a graphic of BHP production, click: here Iron ore sales by BHP into higher-priced long term contracts were reduced to 72 percent of overall output from its Australian mines over the last three quarters as buyers asked to defer long-term sales contracts because of weakening demand.
All the deferred ore was being sold on the spot market, BHP said.
BHP shares slipped 0.5 percent to A$31.41, in contrast with modest gains in the S&P/ASX 200 index. Rio was 1.6 percent higher at A$55.42.
(Editing by Michael Urquhart)
© Thomson Reuters 2009.