BHP Billiton looks to cut production cost of iron ore

12 May 2015 (Last Updated May 12th, 2015 18:30)

BHP Billiton has announced plans to extend cuts in capital spending and operating costs following the demerger of South32 in a bid to make itself a lowest-cost iron ore mining company.

Andrew Mackenzie

BHP Billiton has announced plans to extend cuts in capital spending and operating costs following the demerger of South32 in a bid to make itself a lowest-cost iron ore mining company.

BHP Billiton chief executive officer Andrew Mackenzie said: "The potential benefits are substantial. We expect to cut unit costs at Western Australia Iron Ore by 21% to $16 per tonne during the 2016 financial year.

"Unit costs at Escondida are expected to fall by 16% on a grade adjusted basis. And we expect drilling costs per well in the Black Hawk to average $2.9m, a reduction of 20%."

According to Mackenzie, the company's has set aside a capital and exploration budget of $12.6bn in 2015, which would fall to $9bn in 2016, reflecting ongoing improvements in capital productivity.

"The iron ore and metallurgical coal markets are currently well-supplied and we do not expect to invest significantly more in these businesses at this time."

This comes on the sidelines of the deferral of some shale development, as well as the Inner Harbour Debottlenecking project in Western Australia Iron Ore.

BHP Billiton anticipates capital expenditure of $1.5bn in 2016 in its onshore US business so as to back a development programme with ten operated rigs.

Mackenzie added: "The iron ore and metallurgical coal markets are currently well-supplied and we do not expect to invest significantly more in these businesses at this time. Instead our capital will be focused on the commodities we believe will have attractive supply fundamentals."

Over the next decade, the company is planning major growth projects at Spence, Olympic Dam and Escondida, which are set to place it as the largest, lower cost copper producer.

The company is set to become an independent producer in shale and offshore with the development of its onshore US acreage, conventional projects such as Mad Dog 2, in addition to its exploration programme in Trinidad and Tobago.


Image: BHP Billiton chief executive officer Andrew Mackenzie. Photo: courtesy of BHP Billiton.