Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
BHP Billiton (LON:BHP)’s CEO Andrew MacKenzie told shareholders at the company’s annual general meeting in London on Thursday that the world’s number one miner is “already seeing signs of recovery in the global economy.”
MacKenzie added that the company expects demand for global commodities to grow 75% over the next 15 years as emerging economies urbanize at a rapid pace.
In the view of BHP’s chairman Jac Nasser, the bulk – as much as 75% in certain commodities – of this growth will continue to be driven by China, which already consumes more than 40% of the world’s copper, a similar proportion of other base metals and two-thirds of the world’s iron ore.
Like peers Rio Tinto (LON:RIO), Vale (NYSE:VALE) and most diversified majors, BHP has scaled back investments on large capital expenditure projects to focus on shareholder returns and cash flow.
While putting on ice massive projects like the Australian Olympic Dam expansion, the Melbourne-based company is keeping its options open on developing its Jansen potash project in Canada including finding a partner for the $14 billion mine.
With the potential to become the world’s largest mines for the fertilizer ingredient, BHP is spending $2.6 billion on the Saskatchewan mine over the next four years although production is not expected before 2020.
“We are derisking the project by doing some of the technically difficult (work) such as sinking the shafts – that will be complete in three or four years and then we can move very fast,” he told the annual general meeting.
“If circumstances were to change we could speed up, but I would say right now … (it is) good idea just to wait and see.”
Another victim of BHP’s austerity program was the Mount Nimba iron ore project in Guinea, which it hopes to sell off.
MacKenzie said talks with Brazil’s B&A Mineracao headed by former Vale CEO Roger Agnelli, over the sale of its 41% stake in the rich West African concession is ongoing adding “we wait and see if there is a possibility to reach an agreement.”
While there is a chance BHP may develop Nimba itself, the company has its hands full in Australia where output is growing at a rapid rate:
“I don’t think our overall direction has changed,” Mr. Mackenzie told reporters after the meeting. “We have a 100 years of reserves in the Pilbara. By far and way the best opportunities for this company is–in a very capital efficient way–to grow the productive capacity of the Pilbara and that really confirms our strategy for iron ore.”
“We strongly believe as a company that this will provide us with the vast majority of the resources that we would want to deliver to our customers going forward, and so West Africa, Guinea and Liberia, does not feature majority in our plans for iron ore expansion at the moment,” he told shareholders.
