BHP cuts costs as demand decreases
Updated: 2013-02-25 05:55
By Bloomberg News in Sydney (China Daily)
BHP Billiton Ltd, the world's biggest mining company, said a slowdown in demand for minerals over the next five years makes cutting costs and boosting productivity a priority.
"I'm committed to drive an agenda of productivity and that will almost certainly be a top theme," said Andrew Mackenzie, the Melbourne-based company's newly appointed chief executive officer, in an interview with the Australian Broadcasting Corp on Sunday, according to a transcript.
Faced with falling prices cutting profits, BHP unveiled $1.9 billion in cost savings when it released its half-year results on Feb 20, as net income fell 58 percent after commodity prices declined. Mackenzie, the head of BHP's copper unit, who previously worked at BP Plc and Rio Tinto Group, takes over from Marius Kloppers on May 10.
While demand in China will remain strong "over the next five years, we are going to go from a growth rate in minerals demand of 15 percent to 20 percent a year to 2 percent to 4 percent a year", Kloppers said in the joint interview for ABC's Inside Business program. "That means the suppliers will be able to respond and meet demand and therefore you have to be low cost and you have to take into account that price is not going to help you."
BHP joined Rio and Anglo American in reporting a drop in earnings as waning global growth last year prompted lower prices and some global miners to slow expansion. BHP sold $4.3 billion of assets recently and in August put projects estimated to cost about $68 billion on hold.
'We have a tremendous choice of the things that we can invest in to grow," said Mackenzie. "We are able to select only the best projects so that we actually do get some of the highest capital productivity and extend Marius' track record."
The price of iron ore, BHP's most profitable unit, averaged 27 percent lower during the six months to Dec 31, data from The Steel Index shows. Iron ore may tumble to $110 a metric ton by the end of the year, as mines in China boost production, cutting import demand in the world's largest buyer, Westpac Banking Corp said this month. Iron ore last traded at $153.60 a ton on Feb 22.
Mackenzie, 56, had about 12 months enforced gardening leave after Kloppers, 50, poached him from Rio in 2007 to head the copper division. He used the time to master Spanish - his fifth language - to help him conduct contract talks in South America as soon as he started, a person familiar with his appointment said last week. He's uniquely placed to wring more efficiencies out of BHP's mining and oil operations, which include shale assets in the US, the person said last week.
Mackenzie obtained a doctorate in chemistry from the University of Bristol in 1980 and has published more than 50 research papers and pioneered extraction techniques in the North Sea for BP, BHP said last week in a statement. He founded the BP Institute at the University of Cambridge as well as institutes at Princeton and Berkeley universities and the California Institute of Technology. He joined Rio in 2004 and, as chief executive of industrial minerals, built a $5 billion titanium mine in Madagascar.
(China Daily 02/25/2013 page14)