SYDNEY--BHP Billiton Ltd. (BHP) signaled it would try to limit
annual spending to US$15 billion, highlighting a newly found
commitment to thrift in the face of weaker commodity prices.
For the world's largest mining company, this expenditure goal
represents a deep cut on the US$21.7 billion it spent last
financial year on projects from huge iron-ore deposits in
Australia's arid Pilbara region to deep-sea oil-and-gas fields in
the U.S. Gulf of Mexico.
Melbourne-based BHP isn't alone in tapering spending plans.
Companies across the resources spectrum have been tightening the
purse strings amid a sharp fall in the value of commodities like
coal and gold as China's economy cools. Rio Tinto PLC (RIO)
recently unveiled plans for a marked cut in spending in the years'
ahead as it focuses on reducing a hefty debt pile accumulated in a
massive expansion of its own operations.
BHP has already made swingeing cuts to expenditure in the
current fiscal period to June 30, 2014, and is likely to report
further reductions in subsequent years as it aims to be "more
clever with capital," Chief Executive Andrew Mackenzie told an
investor briefing in Houston.
Spending around US$22 billion last year "seems an awful lot,
which we wouldn't want to go back to," said Mr. Mackenzie. "I don't
quite know exactly what the right level is, but I can tell you at
levels of around US$15 billion I am very confident that we can grow
this company and provide an appropriate cash return to our
shareholders."
The miner has a budget around US$16.2 billion for the current
financial year. It lifted a temporary freeze on approving new major
projects when it approved investment of US$2.6 billion in the
Jansen potash project in Canada.
Mining companies have become increasingly prudent in response to
a slide in commodity prices and shareholder criticism of the
massive investments to expand production capacity that were made
even as global markets weakened. Gold prices are down 35% since
their peak in September 2011, while thermal coal and iron ore have
declined 31% and 27% over the same period.
Earlier this month, Rio Tinto Chief Executive Sam Walsh said the
miner would slash its capital expenditure budget to US$8 billion in
2015 from more than US$17 billion last year. He signaled a US$8
billion-US$10 billion range as a more sustainable level for the
London-based group.
Brazilian iron-ore giant Vale SA (VALE) has also disclosed a
more slender investment budget for 2014, nearly 20% smaller than
its peak level in 2011.
This sharp slowdown in investment is hitting resource-rich
economies like Australia, which relies heavily on exports of
commodities like iron ore and coal.
Spending on resources projects in Australia has fallen at its
fastest pace for 14 years, sliding faster than many analysts
anticipated as companies scaled back expansion plans, according to
U.K. bank Barclays PLC. The government's resources forecasting body
says investment in the Australian resources sector may plunge by
more than two-thirds over the next five years.
Even a US$15 billion budget may be too much for BHP, said Mr.
Mackenzie, who pledged to put the brakes on profligate investment
when he succeeded Marius Kloppers as chief executive earlier this
year.
"Do we need to spend up to that level? Well, let's see," he
said. "We will look at growth capital as an option for us to invest
or to return to shareholders, and if the case is strong to return
to shareholders it may be a bit less than that."
The miner is targeting production increases in key divisions
like iron ore and coal largely through productivity improvements.
Mr. Mackenzie said BHP's coal business in Queensland state could
well surpass its targeted capacity of 66 million tons a year with
no extra spending.
"I'm confident that we'll go beyond 66 [million tons] without
actually coming back for any more investment," he said.
The company also hopes to raise iron-ore output in the Pilbara
as much as 30 million tons in the next few years by running its
infrastructure and eight pits more efficiently. It recently
committed to spend US$301 million to replace two shiploaders at its
Nelson Point operations at Port Hedland in Western Australia.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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