By Elisabeth Behrmann and Jesse Riseborough
BHP Billiton Ltd., the world’s largest mining company, is targeting an 18 percent cut to capital spending in fiscal 2014 as part of an industry-wide drive to boost returns from investment.
“We need to squeeze returns from our installed infrastructure,” Andrew Mackenzie, the new chief executive officer of Melbourne-based BHP, said today in notes for a speech at a conference in Barcelona. “Capital and exploration expenditure for the 2014 financial year will decline significantly, to approximately $18 billion.”
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Mackenzie, 56, this month took over as CEO from Marius Kloppers, amid a changing of the guard at the world’s biggest mining companies as the cresting of the global commodity boom saw record prices wane. BHP joins Glencore Xstrata Plc and Vale SA in deferring projects and cutting back on spending.
“The rate of spend is expected to decline substantially” after 2014, Mackenzie said. “By reducing our annual spend and increasing internal competition for capital, we expect to maximize returns from incremental investment, while delivering a substantial increase in the group’s free cash flow.”
BHP fell 0.4 percent to 1,904.00 pence at 8:22 a.m. local time in London trading. Rio Tinto Group declined 1.1 percent.
Glencore this week said it halted work on a 35-million- metric-ton coal port in Australia, while Vale in March shelved a $5.9 billion potash project in Argentina. Resources companies are doing anything they can to reduce their cost base and protect cashflows, including pulling back on spending plans and selling assets, Goldman Sachs Group Inc. said this month.
BHP estimates it will spend $22 billion on projects and exploration this fiscal year after a record $22.7 billion in fiscal 2012, according to Mackenzie’s presentation.
BHP in February joined Rio Tinto and Anglo American Plc in reporting a drop in earnings. BHP and Rio are among companies selling assets to shore up earnings and cut costs after more than $60 billion of writedowns in the industry.
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Mackenzie said in February that he will drive an “agenda of productivity” before BHP unveiled $1.9 billion in cost savings when reporting a 58 percent decline in first-half earnings.
Former CEO Kloppers delayed a development decision on Canada’s Jansen potash mine in August last year as part of a plan to shelve all major project approvals in the 2013 fiscal year. The project was valued at $7.3 billion by Deutsche Bank AG analysts last year. First output could start in 2017 at a cost of $5 billion to $6 billion, according to Deutsche Bank.
“We continue to review Jansen, it has to perform, it has to compete for a smaller amount of capital,” Mackenzie said today. “No decisions have yet been taken and I stress that we have to look at things from the perspective of returns and value to shareholders. With a smaller capital budget there is always going to be more competition for funding which will drive values up and Jansen has to make the mark.”