BHP well on way to achieve cost-cut, output targets: Andrew Mackenzie

BHP well on way to achieve cost-cut, output targets: Andrew Mackenzie
by: Matt Chambers
From: The Australian
October 23, 2014 12:00AM
BHP Billiton’s financial year is off to a strong start, with record production from three of its four- ­pillar businesses putting the miner in a prime position to beat productivity and production ­targets as it pursues a cost-cutting drive to offset slumping prices.
The world’s biggest miner is facing a $US7 billion ($7.9bn) price-led drop in full-year earnings if commodities and the Australian dollar remain at current prices, according to company data, something chief executive Andrew Mackenzie is putting relentless pressure on his people to mitigate through cost savings and productivity.
Mr Mackenzie has set a target of at least $US3.5bn of cost-cutting and productivity gains over the next three years to counter the price slide.
In yesterday’s first-quarter production report, BHP beat market expectations for coking coal and petroleum production as its austerity drive continued to deliver.
At its biggest money earner, West Australian iron ore, the company continued to push more low-cost volume on to a saturated market and make life hard for smaller players, but an investor site tour this month meant the market had already factored in the gains.
“Our relentless focus on productivity continues to yield strong results,” Mr Mackenzie said.
“We are very well positioned to reduce cash costs by more than $US2.3bn and deliver volume-­related productivity gains of at least $US1.2bn by the end of 2016-17.”
While BHP did not change any of its full-year guidance, the March quarter results show it can beat its own forecasts in iron ore, petroleum and coking coal if it maintains current rates and is not hit by severe weather.
BHP’s fourth pillar, copper, did not perform so well, missing expectations after a weak quarter at the big Escondida copper mine in Chile it owns with Rio Tinto.
At Escondida, it flagged deferred production this quarter ­because increased throughput meant water restrictions were now anticipated.
BHP also said there was a $US366 million cost blowout at the Escondida Organic Growth Project 1 to $US4.2bn approved during the period.
The increase “reflected ­challenges associated with contractor progress which have now been addressed,” BHP said.
This year’s accounts will also have a roughly $US700m writedown associated with the death of the Australian mining tax.
The on-paper charge actually signals BHP expects more profit and is a writedown of the deferred tax asset it was keeping on its book representing depreciation allowances under the Minerals Resource Rent Tax.
BHP’s best performing unit, when compared to market expectations, was petroleum, where ­increased US shale oil production grew output 4 per cent from the previous quarter to 67.4 million barrels of oil equivalent, beating Deutsche Bank and RBC expectations of a fall to 62 million.
If BHP can keep going at this rate it will produce 270 million barrels of oil equivalent, well up on guidance of 255 million. Coking coal was also a strong performer, with production ­increasing 7 per cent to 12.77 million tonnes after the Caval Ridge mine in Queensland came on line earlier than expected and its ­Illawarra mines in NSW, which are ­earmarked to become part of the company’s planned spin-out of non-core assets, performed well.
The performance beat market expectations of around 11 million tonnes and puts coal chief Dean Dalla Valle on track to produce 51 million tonnes of coking coal this financial year, up from guidance of 47 million tonnes.
In WA, where iron ore boss Jimmy Wilson is looking at ­extremely low-cost, infrastructure-light expansion of his mine, rail and port network, production grew 1 per cent from the previous quarter to 57.1 million tonnes.
Including minority partner interests, production was 62.4 million tonnes, just missing Deutsche expectations of 62.9 million but in line with RBC expectations.
If the Pilbara region’s cyclone season is a mild one and West Australian iron ore production can be sustained, annual production of 248 million tonnes would beat guidance of 245 million.
And if further productivity gains can be had, the production will be higher.
The strong results did little to move the dial for BHP investors. Shares rose 52c, or 1.5 per cent, to $34.27 yesterday on a strong day for miners when Rio rose 2.1 per cent and Fortescue Metals Group 3 per cent.

About prosperitysaskatchewan

Consultant on Saskatchewan's natural resources.

Posted on October 22, 2014, in other minerals. Bookmark the permalink. Leave a comment.

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