BHP Billiton joins Rio in shifting focus to growth

[BRUSSELS] BHP Billiton has talked up its future growth options, joining fellow mining giant Rio Tinto in marking a shift in focus after four years of aggressive cost cutting.

While big miners are still looking to sell assets to help cut debt or to exit businesses like nickel and coal, they are also preparing for a pick-up in demand as looming supply gaps in at least some commodities sow the seeds for higher prices.

After Rio hit the go button last week on the long stalled US$5.3 billion expansion of the Oyu Tolgoi copper mine in Mongolia, BHP said on Tuesday it expects to sign off on copper and oil projects next year.

"For the last couple of years, it's been more about batten down the hatches and cost control. They may be changing the focus slightly now," said Andy Forster, a portfolio manager at Argo Investments.

BHP chief executive Andrew Mackenzie said the Spence copper project in Chile was now expected to cost less than US$2.2 billion, 30 per cent below earlier estimates, and would add 200,000 tonnes of copper by 2020.

"This will be well-timed for the improving market fundamentals we expect," Mr Mackenzie said at mining conference in Miami.

BHP also expects a final investment decision in 2017 on the Mad Dog oil expansion in the Gulf of Mexico, operated by BP, where it said its share of the project would cost between US$2.5 billion and US$3 billion.

While the growth options have long been flagged, the timing of investment decisions in 2017 was new.

"(Rio and BHP) have both got some sort of growth pipeline, but both companies have been quite rightly reluctant to commit big licks of capital to add volumes to oversupplied markets," said Ben Lyons, a portfolio manager at ATI Asset Management.

Mr Mackenzie said the company planned to continue slashing costs, targeting US$3.6 billion in further savings by June 2017, on top of US$10 billion reaped since 2012.

"We have been surprised by the extent of cost cutting across the industry," he said, adding that cost savings for some of its rivals now appeared to be approaching their limit.

"In our opinion, BHP is well positioned relative to peers to positively surprise from cost savings/productivity, with the streamlining of the corporate structure in Feb-16 potentially underestimated by the market," UBS said in a note on Wednesday.

BHP expects to cut its Western Australian iron ore costs to US$14 a tonne in 2017, from a forecast US$15 this year, and its metallurgical coal costs to US$55 a tonne, from US$59 this year, improving its margins while prices remain weak.

Speaking at the same conference, Ivan Glasenberg, chief executive of Glencore, said "record low sector margins are setting the scene for the next price upswing" after a plunge in investment.

Mr Glasenberg has long slammed rivals for adding more volumes to oversupplied markets and said going forward growth needed to be redefined as cash flow per share, rather than production.

He said Glencore's asset sales were progressing well and April disposals should be completed this quarter.

REUTERS