FTSE 100 miners BHP Billiton (BLT) and Anglo American (AAL) both see their shares drop on quarterly production figures, leaving investors frustrated over the extreme volatility in the sector.

On one hand, lower output from big producers is positive for commodity prices. On the other hand, it is negative for the companies themselves as analysts have been cautiously upgrading earnings forecasts for the sector.

BHP Billiton has disappointed with iron ore output below expectations and guidance for a 15% decline in oil and gas production in its new financial year. It shares fall 2.4% to 924.5p.

Anglo American fares even worse with a 6.4% decline to 761.6p. It has failed to hit forecasts for quarterly copper, iron ore and met coal and has downgraded its guidance for copper production.

You could argue that we are only looking at three months’ production and mines don’t always run smoothly. Indeed, Investec says Anglo’s year on year declines in output is ‘largely a function of adjusting production profile for tougher environment.’

Today’s share price declines for the big miners show how the market is still operating with a very short term view and stocks are experiencing knee-jerk reactions to every bit of news from the resources sector.

BHP nearly halved its petroleum capital expenditure in the past 12 months to $2.5 billion. That figure will drop to $1.4 billion in the new financial year. ‘Shows what oil going from $110 per barrel to $45 will do,’ says Investec.


The big drop in petroleum output over the past year has come from BHP’s loss-making US Onshore operations, so the reduction could actually be positive to earnings. Onshore production fell 13% year on year versus a 1% gain from its Conventional petroleum arm.

Canaccord Genuity says BHP’s production report exceeded its expectations apart from iron ore. ‘Today's release is therefore expected to have a positive impact on our earnings forecasts and valuation.’

BHP Billiton's chief executive Andrew Mackenzie expects volumes and costs on the mining side of the business to benefit from improved productivity. He adds: 'We can create significant value through further cost reductions, taking advantage of latent capacity in our assets and investing in low-capital projects.

'These initiatives are expected to grow production by five per cent in copper, up to four per cent in iron ore and three per cent in metallurgical coal in the next financial year.'

Anglo American boss Mark Cutifani says his company is maintaining a cautious outlook.

Issue Date: 20 Jul 2016