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BHP to focus on copper & cash preservation for value retention post South32 spinoff

BHP Billiton has outlined how the company is still well positioned to create company value following the South32 spinoff.

BHPBilliton Andrew MacKenzie
BHP Billiton CEO Andrew MacKenzie

Ahead of the Bank of America Merrill Lynch 2015 Global Metals, Mining & Steel Conference in Barcelona, CEO Andrew Mackenzie, provided new efficiency targets for BHP Billiton’s major businesses and explained how the company’s financial strength and development projects would support its progressive dividend over both the short and long term.

“In recent years we have made great strides towards becoming the most efficient supplier of our chosen commodities and secured productivity gains of nearly US$10 billion. We believe we can go even further with a simpler portfolio and improve margins by reducing costs more deeply than the competition,” he said.

Cutting costs

“The potential benefits are substantial. We expect to cut unit costs at Western Australia Iron Ore by 21% to $16/t during the 2016 financial year. Unit costs at Escondida are expected to fall by 16% on a grade adjusted basis. And we expect drilling costs per well in the Black Hawk to average $2.9 million – a reduction of 20%.”

Mackenzie said capital and exploration expenditure would fall to $9 billion in the 2016 financial year from $12.6 billion in 2015. The reduction reflects on-going improvements in capital productivity along with the deferral of some shale development and the Inner Harbour Debottlenecking project in Western Australia Iron Ore – decisions that will further improve the returns of the company’s growth portfolio.

In its Onshore US business, BHP Billiton now anticipates capital expenditure to be $1.5 billion in the 2016 financial year to support a development programme with ten operated rigs.

Focusing on ‘strong’ commodities

“We will continue to invest in our high quality projects to create long-term value and support dividend growth. The iron ore and metallurgical coal markets are currently well supplied and we do not expect to invest significantly more in these businesses at this time. Instead our capital will be focused on the commodities we believe will have attractive supply fundamentals,” he said.

“We believe grade decline in copper and field decline in oil will constrain industry production and support a recovery in prices over the medium term. The potash industry has largely exhausted brownfield expansion options and new greenfield supply will be required.

“Our diverse portfolio of growth options will allow us to select the markets in which we can create the most value.

“Over the next decade, our attractive growth projects at Spence, Olympic Dam and Escondida will help us to embed BHP Billiton as one of the largest and lowest cost copper producers. In Petroleum, the development of our Onshore US acreage, conventional projects like Mad Dog 2, and exploration opportunities such as our programme in Trinidad and Tobago will build on our foundation as one of the most competitive independent producers in shale and offshore. And following completion of the shafts, Jansen will be the potash industry’s most advanced option to bring on new greenfield supply.”

Mackenzie added: “BHP Billiton’s investments are expected to generate substantial value. Our pipeline of development projects has an expected average rate of return in excess of 20% and we will continue to test all investment decisions against challenging criteria that include buying back our own shares.”

In conclusion, he said: “Our portfolio of low-cost assets is unrivalled in scale and quality and we have the sector’s strongest balance sheet. Together these give us resilience and flexibility in volatile markets. As we improve our productivity and invest in high-return projects through commodity cycles, we expect to offer our shareholders superior returns.”

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