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Post Market Wrap | BHP’s March 2022 operational performance impacted by COVID-19



This Post Market Wrap is presented by KOSEC – Kodari Securities

  • Iron ore and coal production volumes and prices remain strong
  • Copper and nickel production volumes impacted by COVID related labour shortages   
  • Potash projects under development in Canada remain on track 
  • Merger of BHP’s oil and gas interests with Woodside Petroleum set for completion on 1 June
  • Skill shortages and overall labour market tightness expected to continue into 2023
  • Long term outlook supported by rising living standards, global population growth and future infrastructure expenditure on decarbonisation solutions.

BHP is a world leader in producing and processing mineral commodities. It has 80,000 employees and contractors, based primarily in Australia and the Americas. BHP is the world’s lowest cost major producer of iron ore. The Company also produces copper, nickel and metallurgical coal at scale and has committed to a significant investment in potash, a natural ingredient for fertiliser.  

March 2022 Operational Review 

COVID induced skilled labour shortages and wet weather have hampered BHP’s production activity during the March quarter, according to production volume details released this morning. However, record high prices for metallurgical coal and continuing high prices for iron ore are supportive of a satisfactory June 2022 financial year profit result.

BHP confirmed its original 2022 production guidance for iron ore, metallurgical coal and energy coal. The Company is taking advantage of record high prices for higher quality energy coal by increasing the proportion of thermal coal sourced from its NSW Energy Coal mine sites. 

Full year copper production guidance has been reduced to between 1570 and 1620 kt, from between 1590 and 1760 kt, and actual production is down 10 percent for the 9 months to March 2022, compared to the 9 months to March 2021. The reduced operational workforce, as a result of significant increases in COVID-19 cases, has resulted in lower production volumes from BHP’s Escondida mine in Chile. Similar operational workforce constraints in Western Australia have cut nickel production volume by 13 percent in the March quarter, compared to the March 2021 quarter volume. BHP has lowered nickel production volume guidance for the year by about 10 percent from original estimates.  

BHP’s potash projects in Canada are tracking to plan with the initial production target dates of calendar year 2027 remaining firm. 

The merger of BHP’s oil and gas interests with Woodside Petroleum is set for completion on 1 June, following Woodside shareholder approval on 19 May. 

Looking Ahead

The BHP earnings outlook remains cautious. 

BHP has previously flagged higher labour costs arising from COVID related skilled labour shortages and this cost imposition had been factored into market earnings estimates. However, BHP’s warning that 2022 guidance is subject to further potential negative impacts from COVID-19 during the 2022 financial year remains a lingering cause of concern. 

The Company also warned that market volatility and inflation pressures have increased further because of the Russian war on Ukraine.  Skill shortages and overall labour market tightness is anticipated to continue in the period ahead, in both Australia and Chile. Furthermore, BHP do not expect these conditions to improve until the 2023 financial year.

Although the BHP production outlook is facing short term headwinds, the long-term picture remains positive. Global population growth, future infrastructure expenditure on decarbonisation solutions and rising living standards are driving demand for clean energy, metals and fertilisers. BHP is leveraged to these global mega-trends, implying consistent earnings growth over the long term. 

This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.

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When will airfares begin to fall?



As the global aviation market rebounds, airlines are changing their service offerings

Over 46 million workers in the global aviation sector lost their jobs as global aviation came to a grinding halt at the onset of the pandemic.

However, Geoffrey Thomas from said passengers have returned to airport terminals and boarded flights in droves.

“When travelled returned, many of us wondered what sort of low airfares will we have to be charged to entice people back onto airplanes.”

In February 2023, total traffic (measured in revenue passenger kilometres) rose 55.5 per cent when compared to February 2022.

Globally, traffic is at 84.9 per cent of February 2019 levels.

“It was a stampede, the likes of which we have never seen before,” Mr Thomas said.

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The worst of inflation could be behind us



The unprecedented nature of the pandemic continue to shape international fiscal policy

As reserve banks and federal reserves continue to battle the impacts of Covid-19, inflation has become a dominate issue.

In some parts of the world, rising household costs have slowed consumer spending by more than expected.

It means the end of aggressive rate hikes could come to an end in a matter of months.

In Australia, recent data from the Australian Bureau of Statistics confirmed inflation has passed its peak and is beginning to moderate.

The numbers show annual inflation peaked in December 2022 but will still remain higher for longer than anticipated.

Matt Grudnoff is a Senior Economist at The Australia Institute, who said these are uncharted waters.

“I don’t think they should be fully blamed.

“The pandemic was an entirely different kind of recession, one that we have never seen before.

“The world went into recession because the world shut down for very good health reasons.

“But the economy rebounded extremely quickly, simply because there was no underlying problem with the economy,” he said.

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“I think there is a great risk”: will AI steal our jobs?



Artificial Intelligence has become an increasingly powerful and pervasive force in our modern world.

Artificial intelligence is not a new concept. However, the growing advancements have the potential to revolutionise industries, improve efficiency, and enhance the quality of life.

Along with its promising advancements, artificial intelligence also brings certain risks and challenges that must be acknowledged and addressed.

It has become the focus of lawmakers, who are working towards greater regulation of the sector.

U.S. and European Union officials recently met in Sweden to weigh up the benefits and challenges of artificial intelligence, and other emerging technologies.

“The AI process is creeping up on us,” said Dr Keith Suter, who is a global futurist.

“You’ve got competition between companies.”

It’s almost like some of us can see this raft that’s heading towards the rapids and a disappearance towards the waterfall, and we’re giving a warning but it’s not being heeded because everybody’s in this race to get down to the river,” Dr Suter said.

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