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BHPBILL -- breaks with pricing tradition
Global resources group BHP Billiton yesterday signalled a move away from the industry-wide norm of annual iron-ore contracts by announcing it had agreed with some customers on a mixture of annual and short-term pricing. This is the first time the group announced a mixture of pricing rather than a benchmark annual price settlement, although last year it sold up to 15% of it's production on the spot market. The change in Billion’s pricing structure also indicates the desire of some iron-ore producers and buyers to move away from benchmark pricing to index pricing.
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BHPBILL -- update on iron ore price negotiations
BHP Billiton announced the terms it has agreed with a range of iron ore customers for the 2009 contract year. These terms vary and reflect the specific needs and requirements of each customer, consistent with our marketing approach. BHP Billiton has settled 23 per cent of total iron ore volumes at an agreed annual contract price. The price for iron ore fines will be approximately 33 per cent lower than the contract prices agreed in the 2008 contract year. The price for iron ore lump will be approximately 44 per cent lower than the contract prices agreed in the 2008 contract year.
A further 30 per cent of BHP Billiton's total iron ore volumes will be sold on a mix of quarterly negotiated pricing, market clearing price (spot market) and index-based pricing. Negotiations for the remaining 47 per cent of iron ore volumes are ongoing. The company believes that current settlements are indicative of continued progress towards transparent market pricing. Further information on BHP Billiton can be found on our Internet site: www.bhpbilliton.com
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BHPBill -- production report
Highlights:
- Annual production was solid despite weak and volatile demand conditions and weather related interruptions.
- Quarterly production increased for twelve major commodities including metallurgical coal, petroleum, copper and energy coal. Operations are well positioned to respond to demand recovery when it occurs.
- Annual production records were achieved for petroleum, copper cathode and iron ore.
- Annual production records at Western Australia Iron Ore, North West Shelf and Saraji (all Australia), Alumar refinery (Brazil), Cerrejon Coal (Colombia) and Zamzama (Pakistan).
- A quarterly production record was set for petroleum, and at Hunter Valley Energy Coal (Australia).
- Iron ore production was impacted by Rapid Growth Project (RGP) four tie-in activities and safety initiatives.
The 2009 financial year proved to be very challenging, with significant demand contraction exacerbated by dramatic movements in inventory levels. In the context of this environment, BHPBill achieved a solid operational performance, despite making production adjustments across a range of commodities, including metallurgical coal, nickel and manganese. In the short term we believe underlying demand trends are still being masked by de-stock and stocking activities across the value chain. China inventory build is essentially complete, while we are now seeing evidence that re-stocking has commenced in North America, Europe and Japan. However, commodity prices will be influenced by supply responses due to latent capacity currently existing in the industry.
BHPBill remains well positioned in a modest demand environment, with high margin businesses and a strong balance sheet that allows us to invest for the future and return funds to shareholders.
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BHPBill -- quarterly exploration and development
This report covers the group's exploration and development activities for the quarter ended 30 June 2009. Unless otherwise stated, BHPBill's interest in the projects referred to in this report is 100% and references to project schedules are based on calendar years.
Development
First production was successfully achieved during the quarter at the Gemco Expansion Project in Australia (manganese) and the Atlantis North development in the deep water Gulf of Mexico (oil and gas). Both projects were ahead of schedule and within budget. In addition, the Alumar Refinery Expansion in Brazil (alumina) announced first production on 9 July. These projects will no longer be reported in future Exploration and Development Reports.
During the year ended 30 June 2009 an additional four projects to those noted above achieved first production and four projects were sanctioned. The four commissioned projects, all oil and gas, were Neptune, North West Shelf Train 5, North West Shelf Angel and Shenzi. The sanctioned projects were the Bass Strait Turrum, Angostura Gas Phase II and the North West Shelf Cossack, Wanaea, Lambert, Hermes (CWLH) Life Extension projects (all oil and gas), as well as the Western Australia Iron Ore Rapid Growth Project 5 (iron ore).
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BHP Billiton - sale of Yabulu nickel refinery
BHP Billiton announced it has signed an agreement to sell the Yabulu nickel refinery to companies wholly owned by Professor Clive Palmer. It is expected that the sale will be finalised by 31 July 2009. The terms of the sale are confidential, however both BHP Billiton and Professor Palmer have sought to provide that, at sale completion, working capital and access to funds are sufficient to enable the business to commence as a going concern under Professor Palmer's ownership.
BHP Billiton will write-down the carrying value of Yabulu by an estimated USD500 million and a further estimated USD175 million of unrecoverable tax benefits. These write downs will be reported as exceptional items in the results of the group for the year ended 30 June 2009. Further information on BHP Billiton can be found on our Internet site: www.bhpbilliton.com
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