BHP Billiton has started the fiscal year with large jumps in iron ore and coal production that could test shareholders' resolve.
The relentless, expensive push to increase volumes that has pushed down the price of iron ore and is squeezing weaker rivals and government coffers is viewed as logical in a business sense.
However there is a view that some shareholders are not willing to wear the short-term share price pain and weaker profits.
The company has maintained full year iron ore guidance of 245 million tonnes.
Deutsche Bank analysts upgraded their forecasts to 251 million tonnes.
BHP lifted production out of the Pilbara by 15 per cent in the three months to September, from a year ago, to a quarterly record of 62 million tonnes.
BHP and Rio Tinto have been criticised by Western Australian premier Colin Barnett and mining executives including Fortescue Metals Nev Power and Glencore’s Ivan Glasenberg over their strategy of increasing the supply of iron ore in a year when the price has fallen 40 per cent.
Iron ore was trading at $US81.50 a tonne on Wednesday.
The falls are expected to lead to a heavy profit slide this year.
Morgans senior analyst Tom Sartor said for that reason he would watch with interest BHP’s AGMs in London on Thursday and in Adelaide next month.
“What I find most interesting is whether shareholders will take them to task,” he said.
“It will depend on the type of shareholder, but if you are really focused on this year’s earnings and short-term gains.”
The major miners such as BHP had the biggest and best resources and were building toward longer-term market share and pricing power with customers, which came at the expense of short-term price volatility, he said.
BHP has disappointed shareholders by not committing to a share buyback or a higher dividend, which Rio Tinto has all but promised to do in February.
The company’s shares are down about 10 per cent this year, but rallied on Wednesday to rise 52 cents, or 1.5 per cent, to $34.27.
BHP was focused on cutting costs with the company not involved in any major infrastructure projects in the Western Australian iron ore business for the first time in a decade, chief executive Andrew Mackenzie said.
He also repeated plans for BHP to become the world’s lowest cost producer of iron ore, by cutting cash costs 25 per cent to less than $US20 a tonne.
Metallurgical coal production rose to 12.8 million tonnes, up a surprising 25 per cent from a year ago, but its price is also weaker this year.
Fat Prophets analyst David Lennox said falls in the company’s aluminium, nickel and copper divisions were more disappointing.
“It was a tale of two companies, the real good: petroleum, iron ore and met coal, and the stragglers,” he said..