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BHP CEO Andrew Mackenzie.
BHP Billiton (ASX:BHP), the world’s largest mining company, now also wants to be lowest-cost iron ore miner, and it plans to do so by extending cuts in capital spending and operating costs in the aftermath of a big spin-off of non-core assets.
Chief executive Andrew Mackenzie said Tuesday the company will now seek to cut costs by 21% at its Western Australian operations to $16 a metric ton in fiscal 2016, slightly lower than the $17 per ton Rio Tinto is spending when mining iron ore, according to what CEO Sam Walsh said in April.
He added BHP is freezing all investments in iron ore and coal, commodities where supply growth has outpaced demand and led to a big slump in prices. Instead, the company will invest in copper and oil.
The move aims to better withstand a downturn in commodity prices that is testing even mining industry heavyweights. Though Mackenzie noted that BHP was “well prepared for the possibility of an extended period of lower prices in several commodities.”
Iron ore prices have dropped more than 50% in the last year and a half, as the top suppliers — BHP, Rio and Vale — have ramped up production and so deepened a worldwide glut of the commodity.
The strategy has brought widespread criticism from rivals and even governments. Only yesterday, Fortescue Metals Group (ASX:FMG) chief executive officer and founder Andrew “Twiggy” Forrest urged Australians to demand official intervention to stop the “damaging” and “reckless” expansion plans.
Ivan Glasenberg, Glencore’s combative chief executive, is never short of words when it comes to criticizing its company’s main rivals.
Australian Treasurer Joe Hockey added to the debate by warning big miners that the government was monitoring their export growth amid weak iron ore prices.
Glencore’s (LON:GLEN) outspoken chief Ivan Glasenberg also echoed Forrest’s concerns at a mining investment conference on Tuesday. He told attendants that oversupplying markets regardless of demand is “damaging the credibility of the industry.”
The executive noted that mining had been the worst performing sector over the past year, with commodity prices, share values and credit ratings all impacted. Investment flow has also weakened and was now about $60 billion below its 2012 peak, when the commodity super-cycle turned sour, Glasenberg said.
Last week, the feisty Glencore boss offered an economics lesson to rival CEOs, who — he said — seem to urgently need a better understanding of demand and supply.
8 Comments
The Rock Kicker
There’d be a few nervous BHP employees around I reckon??? Shareholders should also be querying how these moves effect the long term viability of the Pilbara operations?
Australian Resident
Channeling taxable income through the marketing subsidiary in Singapore is another great way to reduce costs.
PaoloUSA
Keep going with the low cost mambo jambo……………………..running behind cost efficiencies which should have been there from day one, while keeping a delusional attitude toward what caused the price slump. Thanks God the mining industry is going toward deep structural changes that will create growth again in 3-4 years time, quality rather than quantity at all cost will be the new name of the game. Corporate Australia loves you, the only call for sanity is from “Twiggy”.
Scott
I find it amusing that people complain about the low cost of iron ore without realising the benefits of it. If the iron ore price was sky high people would be whinging about inflation, cost of steel products and how the miners should be doing something about it. Mining is a cyclical industry and as there is no cartel / monopoly, we get volatility in prices.
Twiggy does not care about economics and his call for Australians to stop iron ore expansions is really a call for Australians to demand higher costs for anything that uses steel. Anyone who supports that, doesn’t really understand what a private company is, and what he’s calling for.
Jonson.joe
It’s kinda funny actually. We all know the stereotypical miner who will spend every dollar made on the biggest house, truck, toys he can get his hands on while the money is good. And when the times are bad, he has to sell everything at a huge discount. If only he had the foresight to put some money away for the rainy day… Well guess what? Mining CEOs are exactly the same way! When the commodity prices are high they all say “grow-grow-grow!” and buy projects at ridiculous prices and diversify into other commodities (aka non-core assets). And despite their ability to make fancy graphs (in the article) they still lack the foresight to prepare the company for the inevitable commodity downturn.
Michael Small
Think a $9 Billion debt has something to do with his bleating!
brettles02
and there is 360 degrees in a circle , round & round we go , it never changes the cycle
Ferris
Who is calling the kettle black? Fortescue have been carrying on about the excess production by BHP and RIO yet they recently increased their production to 150-160mtpa with opening of their third production hub. Any offers of reduction by them?