This is how BHP plans to be the world’s lowest-cost iron ore miner
BHP Billiton (ASX:BHP), the world’s largest mining company, now also wants to be lowest-cost iron ore miner, and it plans to do so by extending cuts in capital spending and operating costs in the aftermath of a big spin-off of non-core assets.
Chief executive Andrew Mackenzie said Tuesday the company will now seek to cut costs by 21% at its Western Australian operations to $16 a metric ton in fiscal 2016, slightly lower than the $17 per ton Rio Tinto is spending when mining iron ore, according to what CEO Sam Walsh said in April.
He added BHP is freezing all investments in iron ore and coal, commodities where supply growth has outpaced demand and led to a big slump in prices. Instead, the company will invest in copper and oil.
The move aims to better withstand a downturn in commodity prices that is testing even mining industry heavyweights. Though Mackenzie noted that BHP was “well prepared for the possibility of an extended period of lower prices in several commodities.”
Iron ore prices have dropped more than 50% in the last year and a half, as the top suppliers — BHP, Rio and Vale — have ramped up production and so deepened a worldwide glut of the commodity.
The strategy has brought widespread criticism from rivals and even governments. Only yesterday, Fortescue Metals Group (ASX:FMG) chief executive officer and founder Andrew “Twiggy” Forrest urged Australians to demand official intervention to stop the “damaging” and “reckless” expansion plans.
Australian Treasurer Joe Hockey added to the debate by warning big miners that the government was monitoring their export growth amid weak iron ore prices.
Glencore’s (LON:GLEN) outspoken chief Ivan Glasenberg also echoed Forrest’s concerns at a mining investment conference on Tuesday. He told attendants that oversupplying markets regardless of demand is “damaging the credibility of the industry.”
The executive noted that mining had been the worst performing sector over the past year, with commodity prices, share values and credit ratings all impacted. Investment flow has also weakened and was now about $60 billion below its 2012 peak, when the commodity super-cycle turned sour, Glasenberg said.
Last week, the feisty Glencore boss offered an economics lesson to rival CEOs, who — he said — seem to urgently need a better understanding of demand and supply.