What is weighing down the BHP share price?

Posted: 20 July 2021 12:27 pm

Shares in mining giant BHP have climbed 33% in the last 12 months.

Shares in the world’s biggest miner BHP (ASX: BHP) are among the top traded shares on the ASX boards on Tuesday. Shares in the company were down 1.7% at $49.65 at the time of writing.

Why is the BHP stock price lower?

Part of the decline in BHP shares is likely on account of a broader decline in mining and energy shares following a sell-off in global markets overnight.

But there are more specific factors at play as well with BHP on Tuesday announcing its operational review. The miner outlined a 4% decline in fourth-quarter production compared with last year, and lower annual production across 4 of its 6 major divisions.

Like its rival Rio Tinto, the company blamed bad weather, labour shortages and COVID-19 related restrictions for the lower output.

The global miner also reported a 5% drop in annual copper production, a 6% decline in full year petroleum production, while metallurgical coal output fell by 1% and energy coal production dropped 17% for the year.

BHP also flagged an increase in operating costs of up to US$425 million due to mine closure provisions and an up to $500 million write-off of at its Yandi iron ore mine and Bass Strait petroleum operations.

Benefiting from high prices

Still, BHP’s iron ore exports for the full year came in at a record 283.8 million tonnes for the 12 months to 30 June, although this was slightly below analyst expectations.

Like its peers, the miner has benefited from a sharp run-up in iron ore prices in the last 2 months of the financial year. On Monday, spot iron ore prices closed 0.5% lower at US$220.05 a tonne.

BHP said it had received an average price of US$158.15 a tonne in the second half of the financial year, up 52% from the first half of the year.

Given that iron ore contributes the bulk of profits for large miners such as BHP, analysts expected to see a significant lift in profitability when financial year results are announced next month.

“This set of results has reaffirmed BHP’s strong operational momentum and we continue to expect that the full year results should provide a strong dividend,” RBC Capital Markets analyst Kaan Peker said in a note.

Considering buying BHP shares?

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