10th May 2016 12:22
LONDON (Alliance News) - The chief executive of BHP Billiton PLC said the company will not wait for commodity prices to recover as it has everything it needs to grow the value of the business as it continues to cut costs and identify the areas of its portfolio that could benefit from a cash injection.
CEO Andrew Mackenzie outlined BHP's strategy to create value and grow the returns it pays to shareholders at a conference on Tuesday - which is likely to please shareholders following the huge cut to the dividend in 2015 and the deferral of investment across assets since the rout within the market began.
"Although we remain confident in the long term outlook for commodities, we are not waiting for prices to recover. We have everything we need in our portfolio right now to significantly increase the value of the company," said Mackenzie.
Mackenzie identified five key areas where BHP can create value moving forward. Over the last year, all of the major miners have released plans that mainly focus around cutting costs, hoarding cash and trying to optimise assets rather than develop new ones or hunt for ones to acquire - but BHP is hoping to lower its expenses whilst investing in its assets to start increasing production after purposelly cutting production levels in response to market conditions.
"We will continue to improve productivity, with a further USD3.60 billion of gains expected by the end of the 2017 financial year. Unit costs in our major businesses are expected to fall to almost half the levels experienced five years ago. We are maintaining momentum with more to come," said Mackenzie.
BHP looks to invest in its copper and oil divisions, stating it could grow copper equivalent cap[acity by around 1.0 million tonnes at a capital cost of "less than" USD1.50 billion. That is equal to around 10% of BHP's current copper production, demonstrating the size and scale of the investment as BHP prepares for prices to rebound over the coming years.
It is a similar story with oil as BHP prepares for prices to recover. The miner plans to progress "quality growth projects".
BHP will be making investment decisions about the Mad Dog 2 oil project in the Gulf of Mexico and on the Spence copper project in Chile in the next 18 months, allowing time for prices to rebound before a decision is made.
One of the only benefits of lower commodity prices is lower costs, with lower activity levels across the industry forcing service companies to reduce their prices for rigs, drilling services and other activities.
BHP said it will take advantage of this and said it has embarked on "one of our most signficant oil exploration programmes" by accelerating its activities. BHP will conduct further drilling on the Green Canyon lease in the Gulf of Mexico by completing the Caicos exploration well in July after successful results from Shenzi North earlier this year.
BHP also plans to increase the number of copper targets it tests this year by 38%.
"We have established a new global technology function to implement integrated programs to unlock resources and lower costs. We have opportunities identified at a number of our major assets that we expect to create significant value over time," said Mackenzie.
"We have the financial strength and the flexibility to pursue a diverse range of opportunities and grow value per share at all points in the cycle, and we have a clear and simple strategy in place to deliver that growth," he added.
BHP shares were up 0.7% to 798.70 pence per share on Tuesday afternoon.
By Joshua Warner; [email protected]; @JoshAlliance
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