12th May 2015 12:36
LONDON (Alliance News) - BHP Billiton PLC Tuesday said its capital expenditure budget will fall in 2016 after it deferred some of its projects and continues to introduce cost cutting measures, which BHP is expecting to lead to significant falls in production costs across its core portfolio.
The FTSE 100-listed miner, which is set to spin off its non core assets into a new company early next year, outlined new efficiency targets for BHP'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.
Speaking at the Bank of America Merrill Lynch 2015 Global Metals, Mining and Steel Conference in Barcelona, BHP Chief Executive Andrew Mackenzie said the company has made USD10 billion in productivity gains over the last few years and said the company can go even further with a simpler portfolio and reduced costs.
"We believe we can go even further with a simpler portfolio and improve margins by reducing costs more deeply than the competition," he said. "The potential benefits are substantial".
Iron ore operations in Western Australia are expected to benefit from unit costs falling 21% to only USD16 per tonne during the 2016 financial year with unit costs at Escondida in Chile expected to drop 16% on a grade adjusted basis.
In addition, drilling costs in the Black Hawk field in the US will fall to around USD2.9 million per well which is about 20% lower than what BHP is currently paying.
Mackenzie said capital and exploration expenditure would fall to USD9 billion in the 2016 financial year from USD12.6 billion in 2015 to reflect ongoing improvements in capital productivity along with the deferral of some shale development and the Inner Harbour Debottlenecking project in Australia. These decisions will further improve the returns of the company?s growth portfolio, it said.
In its onshore US business, BHP now anticipates capital expenditure to be USD1.5 billion in the 2016 financial year to support a development program with ten operated rigs.
"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," said Mackenzie.
Grade declines in copper and field declines in oil are set to constrain industry production and support a recovery in commodity prices in the medium term whilst the potash industry has exhausted borwnfield expansion options which will require new greenfield sites to meet demand, said Mackenzie.
"Our diverse portfolio of growth options will allow us to select the markets in which we can create the most value," he added.
"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 program 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," said Mackenzie.
Last Wednesday, 98% of BHP shareholders backed plans to spin-off the company's non-core assets into a new mining company, South32, in meetings held in London and Perth.
The de-merger will see BHP retain its core portfolio of 19 assets over eight countries, focusing on "exceptionally large, upstream, tier one assets diversified by commodity and geography" spread over Australia, Brazil, Colombia, Chile, Peru, the US, Trinidad and Tobago and Canada. Its operations will focus on what it calls its five pillars of iron ore, copper, coal, potash, and oil.
The assets being retained by BHP generated 96% of the company's underlying earnings before interest and tax in 2014.
South32 will take on assets from BHP that are predominantly in the southern hemisphere with some projects in Mozambique and South Africa alongside other assets in Brazil, Colombia and Australia. The portfolio will be diversified with exposure to manganese, silver, nickel, aluminium and coal.
BHP shares were down 0.4% to 1,565.50 pence per share on Tuesday afternoon.
By Joshua Warner; [email protected]; @JoshAlliance
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