BHP Billiton CEO Looks to Cut Annual Spend Below US$15 Bln – by Rhiannon Hoyle (Wall Street Journal – December 10, 2013)

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.

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