MELBOURNE (Nov 24): BHP Billiton, the world’s biggest mining company, plans to take a scalpel to capital spending and costs to bolster cash flows as iron ore and crude oil prices plunge.
Capital expenditure will be cut to US$14.2 billion in the 12 months to June, from a previous estimate of US$14.8 billion, dropping again to US$13 billion in 2016, the producer said today in a statement.
The tumbling prices mean investors are seeking assurances over dividend payments and the prospect for additional returns, according to Sydney-based UBS analyst Glyn Lawcock.
Oil has dropped about 30 percent from a June peak as the US pumps at the fastest rate in more than three decades, while iron ore is trading around five-year lows as BHP.
Each US$1 dollar fall in the price of iron ore cuts net profit after tax by US$135 million, while a similar fall in the oil price has a US$50 million impact, according to filings.
The producer is targeting productivity gains of US$4 billion through June 2017, an increase of US$500 million on a previous target, Melbourne-based BHP said today.
“From this strong foundation we will strike the right balance between investment in high return opportunities and returning cash to shareholders,” Chief Executive Officer Andrew Mackenzie said today in the statement.
Trimming spending
The biggest miners are trimming spending after a decade-long US$623-billion investment spree was followed by asset write-downs and management clear-outs.
Rio Tinto Group, the second biggest miner, is targeting a further US$1 billion in savings by the end of next year, after stripping out US$3.2 billion of expenses since 2012, it said in August.
Rio CEO Sam Walsh said in August that the world’s second-largest mining company is on its way to becoming a “cash machine” for investors as an 18-month cost-cutting drive starts to bear fruit.
Iron ore fell on Nov 19 to the lowest level since June 2009 and has declined 48 percent this year as the biggest exporters, including BHP and Vale SA, have raised output just as demand from China has waned.
BHP said today it’s seeking to raise output in its copper unit, including at Escondida, the world’s biggest copper mine.
Constraints on power and water supplies in several countries will probably lead to a significant supply deficit by 2018, the producer said.
Output at the Olympic Dam copper mine in South Australia will increase by about 50,000 metric tons a year in the 12 months through June 2018, it said in the statement.
Dean Dalle Valle, currently president of the coal division will switch roles with Mike Henry, HSE, Marketing and Technology President, next year, the company said.