BHP boss begins austerity drive
Newly appointed BHP Billiton boss Andrew Mackenzie has slashed the miner's capital spending by 18 per cent, and flagged more "substantial" cuts in future, reinforcing concerns that the mining investment boom has peaked.
Speaking in Barcelona in his first big investor presentation as chief executive, Mr Mackenzie said BHP would slash capital and exploration expenditure to $US18 billion for the next financial year, down from $US22 billion this year.
He said the company's spending would continue to "decline substantially" in subsequent years as well, as it focused on its productivity drive and enhancing profits from existing projects.
"You will recognise my passion for our productivity agenda and this extends to our development projects," he said. "Put simply, we must challenge ourselves to increase returns from new investment, in the same way that we need to squeeze returns from our already installed infrastructure."
Mr Mackenzie's speech was made after the close of trade on Tuesday, during which BHP shares rose 0.4 per cent to $34.67.
BHP unveiled $1.9 billion in cost savings when reporting a 58 per cent decline in first-half earnings in February. It said no new major projects would be commissioned this year.
The declaration of relative austerity by the BHP boss could also raise doubts over the future of the next mega-project on BHP's radar - the $US10 billion-plus Jansen potash project in Canada. BHP is expected to decide whether to proceed next year.
Mr Mackenzie, 56, took over as chief executive from Marius Kloppers last week. He said the spending cuts were an extension of BHP's long-held strategy. "Our enduring strategy has worked well for the company and its shareholders," he said. "In fact, strict adherence to this strategy is what has differentiated us, and I intend to give it an even sharper focus."
Mr Mackenzie said the global economy continued to strengthen despite "underlying volatility". He said global growth would continue to underpin demand for resources, with China well-placed to sustain its growth trajectory and the US economy gaining momentum.
He said the risk of persistent oversupply for BHP's major products, including iron ore, had been overstated, particularly as industry-wide project approval rates had slowed.
Mr Mackenzie told investors to expect an even greater focus on the major basins where BHP retained a competitive edge, including its so-called "four pillars" of its Pilbara iron ore, Queensland coal, Escondida copper in Chile and its onshore petroleum resource in the US.
Mr Mackenzie also alluded to increasing capital returns to shareholders as one way of boosting shareholder returns.
"We believe our strategy ... will deliver stronger margins throughout the economic cycle, a simpler and more capital-efficient structure, a substantial increase in free cash flow and growth in shareholder value," he said.