THE DISTILLERY: BHP's big picture

Jotters pick apart BHP Billiton's latest production figures, with one reckoning on a shift in exploration emphasis.

BHP Billiton’s latest production report has got Australia’s business journalists thinking about how its exploration footprint will shape the miner, how the upcoming financial results will look and just when Marius Kloppers’ successor will be announced.

The Australian’s Barry Fitzgerald reports that anecdotal evidence indicates the big miners are cutting back their exploration budgets by as much as 20 per cent, which is the easiest way to reduce costs without hindering planned production growth.

"All that is by way of background to changes to BHP Billiton's minerals exploration effort. The changes were not spelt out in BHP's exploration and development report for the December quarter, released yesterday along with its production report for the period. But they are just as important as anything else in either report. That's because today's exploration strategy – and the level of commitment – can pretty much tell you what a company will look like in 10 years' time. BHP is no different, and what can be gleaned from the change in its mineral exploration commitments is that a transformation is under way, the end result of which will only be able to be judged long after its architect, Marius Kloppers, is long gone as chief executive.”

Business Spectator’s Stephen Bartholomeusz similarly enlightens readers with the notion that you can see into BHP’s future by peering into its latest production report.

"In an environment of volatile and generally lower prices for most hard commodities BHP and its peers may not be able to control, or even forecast with any precision, it becomes imperative that they shift their emphasis to volume. It is also critical, however, that unlike much of the past decade as the bull market/bubble in commodities developed China-inspired momentum and heady prices, that volume isn’t pursued at any cost. All the major miners have committed to re-basing their costs at lower levels and paying far more attention to the intensity of the capital they deploy than they did during the mad scramble to maximise their exposures to those record commodity prices.”

Fairfax’s Adele Ferguson says attention is now shifting to BHP’s financial results next month, which are expected to include a cost reduction target similar to rival Rio Tinto.

"There is also an expectation that BHP will follow Rio's lead and take the knife to the value of some of its assets. These include aluminium and nickel and possibly its Petrohawk business. But in the scheme of BHP's diversified portfolio, the write-downs, speculated to be up to $US6 billion, are peanuts.”

Ferguson also writes that there’s no indication from BHP as to when they might nominate a replacement for chief executive Marius Kloppers; it’s an issue that’s been brought to the forefront in the wake of Rio’s ousting of boss Tom Albanese.

Also this morning, The Australian’s Bernard Salt has commissioned a special set of data from the 2011 census to re-examine the demographic term known DINK (double income, no kids).

"The reason DINKs have always excited the business community is because of their spending power: double-income no-kid households, inclusive of same-sex couples, are likely to spend more than average on housing, technology, travel, restaurants, clothing, probably alcohol (such as wine, spirits and boutique beers) and (European) cars than households dominated by mum, dad and the kids.”

Aside from BHP, the largest thing to come out of yesterday’s news cycle was the better than expected inflation figures. Fairfax’s Michael Pascoe notes the pleasant surprise consumer price index, but argues the outlook for inflation is not totally worry free.

Be that as it may, for the moment the numbers are very good. The Australian’s economics editor David Uren says these figures will make life difficult for shadow treasurer Joe Hockey, who’s trying to convince the electorate that the lack of a budget surplus is putting upward pressure on prices.

In company news, The Australian’s John Durie argues that recent speculation that Spanish lender Santander is interested in National Australia Bank’s UK business at least demonstrates that there’s some strength returning to the British banking sector.

The Australian Financial Review’s Matthew Stevens notices that Discovery Metals might be more amenable to discussions with its Chinese private equity suitor Cathay Fortune following problems at its flagship Boseto copper project in Botswana. Whether the spurned bidder will be willing to engage now is a different matter.

Elsewhere, The Australian Financial Review’s Chanticleer columnist Tony Boyd demonstrates his well-known tech savvy by putting on a clinic explaining the moving components to the latest spectrum sale by the government. All three of the big telcos have signed up.

The Australian’s Asia Pacific editor Rowan Callick looks at the at times tumultuous relationship between Australian and Papua New Guinea through a rather simple and compelling context: we have invested more than $16 billion there, which is the same as in China.

And finally, The Herald Sun’s Terry McCrann runs through the cost-benefit case for the Melbourne Grand Prix and finds that, well, there isn’t one and the city should get rid of the loss-making enterprise.

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