production report, page-2

Full report is a bit more bearish. Ohh my god, lower commodity prices are going to affect there earnings estimates. Who would have thought!!!

Analysts chop BHP Billiton forecastFont Size: Decrease Increase Print Page: Print Matt Chambers | January 20, 2009
Article from: The Australian
BHP Billiton's earnings estimates have been slashed by analysts.

The global economic outlook continues to weaken and this will hit the big miner as it prepares to deliver one of its most anticipated quarterly production reports.

UBS, Credit Suisse and Deutsche Bank have all taken the hatchet to BHP's full-year earnings forecasts in recent days, slicing up to $US1.5 billion ($2.2 billion) from previous estimates and forecasting BHP's first drop in profit for eight years.

BHP's second-quarter production report tomorrow could foreshadow further downgrades, with most observers saying there is a danger of production results being worse than previously expected amid slumping global minerals demand.

The report will contain the first outlook statement from BHP since November and give an indication of how the miner is positioning itself amid the rapid economic slide.

Any sustained production cuts will probably mean more job losses for Australia's mining industry, which has shed more than 5000 positions since July and is bracing for up to 3000 more next month when Rio details plans to slice 14,000 workers globally.

BHP is the only big miner yet to announce major production cuts. Its peers Rio Tinto, Anglo American and Xstrata have all done so already.

Tomorrow's report will give long-awaited information on how the world's biggest miner performed as demand and prices slid.

"BHP has provided little commentary or guidance ... at a time of diminished demand from customers," UBS analyst Glyn Lawcock said.

"We see potential for downside risk to achieving the market's production expectations."

Mr Lawcock slashed his full-year operating earnings forecast from $US13.3 billion to $US11.85 billion after Rio's report last week failed to meet expectations. Including one-offs, the bottom line is expected to be $US9.9 billion.

BHP last year earned a record profit of $US15.4 billion.

The quarterly report will be closely studied because BHP chief executive Marius Kloppers and his management team have repeatedly said that it is the forum for revealing how output is faring, and that only significant cuts would be put to the market.

So far, BHP has only announced production cuts at its Samancor manganese operations in the Gulf of Carpentaria and South Africa.

However, Queensland port statistics show that coking coal, expected to be BHP's second-biggest earner this year, has been hit hard in December, with production down 24 per cent for the month at its Hay Point terminal and 5 to 15 per cent at other Queensland ports it exports from.

Iron ore shipped out of BHP's Port Hedland berths hit a target given in November and is expected to be flat because BHP sold iron ore on to spot markets at prices substantially lower than contract prices, while Rio pulled back production.

Credit Suisse analyst Paul McTaggart cut his forecast for BHP's full-year operating earnings by 10 per cent to $US12.7 billion on a combination of cuts to commodities price forecasts and expected production cuts to iron ore and coking coal.

"Market estimates for mining houses have been more optimistic in terms of iron ore and coal volumes and we perceive additional risk to consensus estimates for BHP," said Mr McTaggart, who last week downgraded BHP to neutral.

UBS now expects BHP to report a first-half operating profit of $US7.2 billion, down from a forecast of $US8.6 billion.

The crisis is really expected to bite in the second half of the financial year, with second-half profit expected to fall to a four-year low of $4.7 billion as prices slump.

BHP's weakest product group, profit-wise, is expected to be stainless steel materials, which contains the Ravensthorpe nickel operation in the south of Western Australia, which was responsible for most of a $US1.5 billion after-tax first-half write-down.

Speculation is growing that the $US2 billion Ravensthorpe project, started last year, will be mothballed or slowed, while the rest of the West Australian nickel operations are under pressure, with UBS expecting the unit to deliver a full-year $US668 million loss before interest and tax.

For the production report, UBS is flagging a 15 per cent year-on-year fall in copper production, 5 per cent rise in iron ore, 2 per cent fall in coking coal from Queensland, an 80 per cent gain in nickel and 50 per cent gain in petroleum.