LONDON – Aug 21 (Reuters) – Mining firms are wooing investors with aggressive cuts after years of profligate spending, but BHP Billiton says the greater challenge will be improving productivity, if major producers are to ride an eventual recovery.
BHP, Rio Tinto and others big and small have promised shareholders they will slash billions of dollars of spending, shedding jobs, reining in wages and cutting back on fringe costs, such as staff travel.
Rio says it tells employees in its iron ore unit to use low-cost airlines or teleconferencing – a far cry from a time when chartering flights to remote mines were the norm and tales abounded of truck drivers on six-figure annual dollar salaries.
But that was the easy bit, the chief financial officer of BHP Billiton, the world’s largest miner, told Reuters. “When you talk about costs there are two elements. One is how you tighten your belt and make the easy changes,” said Graham Kerr, a BHP veteran put in charge of finance last year.
“The second is productivity,” he said in an interview. “Getting more out of your existing people, your equipment and your infrastructure. Productivity will deliver more benefits over time, but takes a little more time to be done.”
BHP said this week alongside its report on annual earnings that it had cut $2.7 billion of “controllable” costs – new exploration projects, for example, but not fuel for existing operations. That figure amounts to a reduction of roughly 7 percent in spending per tonne of copper equivalent production.
The saving – $2.2 billion at the operating level – helped offset an $8.9-billion hit to operating profit caused by lower prices for BHP’s products.
The bulk of the saving came from cutting back on exploration and development – $1.5 billion out of the $2.7 billion – a decision Kerr is confident carries little risk for the future.
BHP has already been pulling out of regions where mining has been developed only recently, including parts of west Africa, and it has been concentrating instead on its core deposits. Exploration is now focused on copper, with no spending planned on new, greenfield projects seeking other minerals.
“We don’t need more iron ore, more energy coal, more nickel,” Kerr said. “We have our resources in the right location and we understand them very well.”
Analysts tend to agree the large miners have enough to work on and can afford to slow the search for new deposits, cutting one area – exploration – that does not affect current production and where, arguably, they can make up lost time later.
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