BHP Boss says Colin Barnett Wrong on Iron Ore

Sunday, October 26th, 2014
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BHP Billiton boss Andrew Mackenzie says West Australian Premier Colin Barnett is “completely wrong” to suggest the mining giant and Rio Tinto are flooding the iron ore market and placing downward pressure on prices, which could potentially squeeze out smaller players.

Mr Mackenzie, speaking to reporters after BHP’s London annual general meeting, said the last time the board sanctioned a major project on iron ore was in 2011.

“What you are seeing now is the impact of those projects coming through,” the chief executive said on Thursday.

“But much more fundamentally, the larger majority of the increases in production on our side, has been won by a productivity initiative.”

The chief executive said the company in 2011 shifted its investment in a long-term sense to petroleum and copper.

Earlier this month, Mr Barnett said BHP and Rio were “flawed in trying to manage the world price of a commodity”.

The premier said business and economic logic suggested the “normal reaction” to a falling iron ore price would be to cut back supply, not to increase it.

He said BHP and Rio’s policies were “damaging to the West Australian economy, to the iron ore industry, to the small iron ore producers and the people they employ”.

But Mr Mackenzie says Mr Barnett is “completely wrong”.

“It’s an interesting one – normally people collude to drive prices up,” the chief executive said.

“We are behaving as a rationale economic enterprise. We have the opportunity to substantially increase our iron ore production through productivity and getting more out of the existing infrastructure.

“In doing that we are winning huge benefits for shareholders.”

Mr Mackenzie said while productivity gains meant BHP’s production would creep up the miner had no plans to invest in any major iron ore projects going forward.

The Scottish businessman said it would be a “very dangerous game to play” to leave iron ore in the ground assuming prices would rise at some point.

“We’ve been very clear in our investor presentation that we see the iron ore curve flattening as more and more low cost supply is added to the market and as the demand for iron ore in the world moderates through the creation of more opportunities to recycle steel,” he said.

The BHP boss argued if a company had installed capacity yet stopped producing it would result in very high costs on a unit basis.

BHP aimed to be the lowest-cost producer which shouldn’t be the swing producer, Mr Mackenzie added.

“The lowest-cost producer has a right to continue on producing at very high margins in a free market.”

By Julian Drape
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