(Reuters) - BHP Group, the world’s biggest miner, on Tuesday reported a drop in first-half 2019 profit as a decline in copper earnings and a series of output disruptions boosted costs and resulted in missed opportunities for cost savings.
BHP kicked off the reporting season for global majors and was expected to post slightly weaker results due to the outages at its Australian and Chilean operations.
Declining ore quality at Escondida in Chile, the world’s largest copper mine, led to higher costs as the miner had to process more ore, while falling prices also stunted copper earnings.
Underlying profit from continuing operations for the six months that ended on Dec. 31 fell to $4.03 billion, down 8 percent from $4.40 billion in the same period the year before, the company said in a statement. That missed consensus estimates compiled by Vuma Financial of $4.209 billion.
Underlying profit measures a company’s performance exclusive of one-time gains and losses.
“It was a sloppy result,” said analyst David Lennox at Fat Prophets in Sydney.
“Unit costs have risen quite substantially and above guidance. I’m disappointed with the growth across the board, and that they are forecasting flat productivity gains for this year.”
The company cut its guidance for a second time on the amount of cost savings it expected to generate during the 2019 financial year because of higher productivity. In August, the company expected productivity gains of $1 billion during the financial year, down from an earlier forecast of $2 billion.
However, on Tuesday, the company cut its forecast for productivity gains to flat for the financial year. The guidance cut was mainly because of $460 million in savings that were not achieved because of unplanned production outages at Olympic Dam, Western Australia Iron Ore, Spence and Nickel West.
BHP’s costs for the half-year period for its iron ore unit were $14.51 a tonne based on exchange rates during the period versus a forecast of less than $14.
At Escondida, costs were $1.17 a tonne against earlier guidance of less than $1.15.
Chief Executive Officer Andrew Mackenzie said that BHP set up late last year a transformation office that reports directly to him to help with the next phase of growth.
“I think there is an awful lot more that is possible in terms of transforming this company to really deliver a stable set of operations where everything runs like a Swiss watch. That will inevitably lift production, make us safer, and reduce unit costs,” he said on a media call.
Last month, BHP said its second-quarter iron ore production fell 9 percent after it was forced to derail an iron ore-cargo train after it ran away en route to a key shipping hub.
Earnings before income tax, depreciation and amortization from copper fell nearly 40 percent in the first half.
However, the miner slightly raised its 2019 copper production forecast to between about 1.6 million tonnes and 1.7 million tonnes.
BHP said it cut net debt to $9.9 billion during the period, below its $10 to $15 billion target.
BHP declared an interim dividend of $0.55 per share, the same as last year.
Revenue from continuing operations rose 1 percent during the period to $20.74 billion.
Reporting By Rushil Dutta in BENGALURU and Melanie Burton in MELBOURNE; editing by Christian Schmollinger