BHP to drive focus on costs in new era

ANDREW Mackenzie will continue BHP Billiton's focus on cost control in a world of lower commodity prices, says outgoing chief Marius Kloppers.

Increasing supply and lower metal intensity in the economies of developing nations would keep commodity prices constrained, Mr Kloppers told investors at briefings in Sydney on Wednesday, emphasising "costs is the theme of the day."

In its December half-year accounts BHP reported it had achieved $US1.9 billion in "controllable" cost savings - apart from costs outside its control such as fuel prices and taxes and royalties - which had contributed significantly to its $US4.2 billion in attributable profit and 4 per cent dividend growth.

"That's only the start," Mr Kloppers said. "The objective here was to arrest [cost inflation] and then to [see it] decline". Mr Kloppers said he would not be drawn on a target dollar figure for future cost savings but he expected Mr Mackenzie, who takes over in May, would "like to stand up here in six months . . . and increase on the $US2 billion number".

At the news conference to announce the succession, Mr Mackenzie, formerly head of BHP's non-ferrous division, said the company had "put an extreme focus - [as] you will see this in today's results - on issues of productivity and capital discipline, which really are very close to my heart. It's something I have a real passion about."

Mr Mackenzie, a scientist and veteran of BP and Rio Tinto, said he had worked in the chemicals industry, which "never . . . enjoys the kind of margins that you see from time to time in the resources industry".

Mr Kloppers said Mr Mackenzie had a rare combination of experience in mining and petroleum, and chairman Jac Nasser was at pains to stress that Mr Mackenzie's oil and gas background should not be read as heralding a shift in BHP's strategy.

Mr Mackenzie said he would "extend our pressure on costs and drive us to the bottom of cost per mined tonne" and said there were "quite powerful synergies that you can unlock between mining and petroleum. I think petroleum has a fundamental part to play in our company and that we are one of the only companies, possibly the only company, that can create value through unlocking those synergies. And, clearly, from my background, we have done a lot, but I am well placed to do more."

Deutsche Bank mining analyst Paul Young said the leadership transition would be "seamless" and BHP's strategy would be unchanged.

Mr Young said BHP's growth would increasingly come from longer-dated commodities such as base metals, potash, and oil and gas and "that's where Andrew's expertise lies". He said Mr Mackenzie had the potential to bring in strategic partners to a number of BHP's new growth projects, including selling down the Jansen potash project and eventually an expansion of the Olympic Dam.

Mr Kloppers' tenure was marked by a series of failed mega-deals including a ditched merger with Rio Tinto, and inconclusive talks on an iron ore joint venture, as well as a failed tilt at Canada's Potash Corp, and shelved projects including Olympic Dam expansion and the harbour at Port Hedland.

Asked if Mr Kloppers was paying for the price for unsuccessful bids and write-downs including last year's $US2.8 billion write-down on BHP's $US20 billion expansion into shale oil and gas in the US, chairman Jac Nasser said: "Clearly not. We've been clear on the succession process, and for those people who have that opinion, I would say look at the results. They speak for themselves."

Mr Mackenzie had been chosen in a "very similar" process to the one that selected Mr Kloppers in 2007, Mr Nasser said. Asked if the board or Mr Kloppers had selected May as the date for the baton-pass, Mr Nasser said it was mutually agreed.

While there was no perfect time to make the change, he said: "You know when the timing is wrong [and] you don't want to get into a corner, which we've seen others do."