New era of austerity at BHP -by Barry Fitzgerald (The Australian – May 10, 2013)

BHP Billiton’s new chief executive Andrew Mackenzie has launched the world’s biggest resources group on a relentless productivity drive, aimed at improving shareholder returns against a backdrop of fading commodity prices.

Mr Mackenzie formally takes the reins at BHP today, with the Scottish polyglot and sometime saxophone player spending the day at BHP’s iron ore operations in the Pilbara.

He replaces the man who hand-picked him as a likely successor more than five years ago, the vegetarian Afrikaner Marius Kloppers, known as much for his safe hands during the global financial crisis as his idiosyncratic tendencies.

Speaking to The Australian before his first day as chief executive, Mr Mackenzie said there would be no big-bang change in BHP’s strategy. It would evolve over time under his leadership, but securing productivity improvements was the immediate focus, replacing the previous focus on production growth.

“Ultimately, we won’t be changing much of it at all. We will probably just be even more clear that our future prosperity is going to be based on a small number of world-class tier-one orebodies,” Mr Mackenzie said. “We are likely to invest less, and therefore the principal way we intend to grow the returns from our businesses is by driving productivity.”

Acknowledging that productivity pushes could quickly become cost-cutting exercises that could cause friction with BHP’s workforce, Mr Mackenzie said there was a new “realism about the challenge to remain competitive”.

“We hope that people in this company understand the performance gap that may exist between them and the best and move to cover it — just like St Kilda,” he said.

The St Kilda reference is a dig at the poorly performed AFL team he has adopted on his move to Melbourne from London, where he was BHP’s copper chief, and a supporter of Scotland’s hapless Clyde soccer club that shares the St Kilda colours.

“We are only going to win new investments, we are only going to support economic growth, if we can produce things for a lower cost per tonne mined, of per barrel of oil lifted,” Mr Mackenzie said.

“I want BHP to be at the forefront of that. And in my coming term, that is how I will be best able to boost returns to shareholders as opposed to continuing to invest.”

As it is, BHP is spending $US22 billion this year on exploration and 20 relatively low-risk, mainly brownfield expansions. The program is testing its ability to meet investor calls for greater shareholder returns in the near term.

Under Mr Kloppers, BHP reined in the scale of future potential commitments by cancelling a $US30bn expansion of the Olympic Dam copper mine in South Australia, and a $US25bn development of the outer harbour at Port Hedland in the Pilbara. In addition, BHP has vowed that no new capital commitments would be made this financial year.

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