BHP Flags Further Cuts to Spending in 2014

Monday, December 16th, 2013
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The head of the world’s biggest mining company has announced that the company plans to further reduce capital expenditures.

Speaking at an investor briefing in Houston, Texas, BHP Billiton CEO Andrew Mackenzie said the mining giant plans to reduce capital and exploration expenditure by 25 per cent in the current financial year, and that further reductions were waiting in the wings for the 2014-2015 fiscal year.

Mackenzie said BHP is turning to sustained productivity gains to shore up value, pointing to the US$2.7 billion decline in controllable cash costs achieved in the 2013 fiscal year via reductions in unit costs and more effective use of existing equipment.

“The company’s productivity agenda has the potential to create more value than anything else we do,” he said.

According to Mackenzie, one of the keys to BHP’s productivity gains has been the use of a shared information management platform which permits the deployment of best practices across the company’s varied range of operations.

Mackenzie also pointed to productivity improvements in development projects, achieved by ramping up “internal competition for capital” as well as efforts to cut project costs.

Andrew Mackenzie

Andrew Mackenzie

While hoping to retain the benefits of diversification, BHP nonetheless plans to simplify its operations and maintain its focus on its four mainstay businesses of iron ore, coal, copper and petroleum as drivers of growth.

According to the presentation, iron ore will account for 37 per cent of the production growth forecast across the group in the 2013-2015 fiscal years, followed by petroleum with a contribution of almost a third.

Coal will account for 19 per cent of growth, copper 10 per cent, while other businesses would make a contribution of just two per cent.

BHP’s unveiling of sustained cost reduction comes just after fellow mining giant Rio Tinto announced that it plans to slash capital expenditures over the next several years.

Rio Tinto said at a recent investor seminar in Sydney that it expects total capital expenditure in 2013 to see a year-on-year decline of over 20 per cent to fall below $14 billion, with commensurate reductions slated to continue over the next two years.

As a result of the compounding effects of the spending cuts, Rio Tinto expects total capital expenditure to fall below half 2012 levels by 2015.

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