BHP Billiton to target $4bn cost savings by 2017

23 November 2014 (Last Updated November 23rd, 2014 18:30)

Anglo-Australian mining giant BHP Billiton has announced targets of $4bn of annualised productivity gains in its core portfolio by the end of 2017, representing a $500m increase compared with previous guidance.

Anglo-Australian mining giant BHP Billiton has announced targets of $4bn of annualised productivity gains in its core portfolio by the end of 2017, representing a $500m increase compared with previous guidance.

With an improvement in capital productivity, planned investment is expected to come down to $14.2bn from $14.8bn in the 2015 financial year and to $13bn the following year.

The company noted that it has re-established its competitive advantage by closing high-cost capacity and sustainably reducing costs in coal.

BHP Billiton CEO Andrew Mackenzie said: "The group's core assets generated more than 96% of its operating profit in the 2014 financial year, so we can cut complexity and lower costs without losing the benefits of scale and diversity.

"Put simply, we can organise a company that operates 12 large, core assets differently to one with 30 operated assets of varying sizes across a broader range of commodities.

"We can organise a company that operates 12 large, core assets differently to one with 30 operated assets of varying sizes." 

"We are now targeting annualised productivity-led gains of at least $4bn within the core portfolio by the end of the 2017 financial year, an increase of $500m on previous guidance. This includes a minimum reduction in cash costs of $2.6bn per annum."

BHP Billiton's operational performance with respect to copper continues to improve, with unit costs at Escondida expected to fall by 30% in the three years to the end of the 2015 financial year.

At Olympic Dam and Spence, longer term growth projects are expected to support total copper production capacity of far more than two million tonnes a year, with first quartile average C1 costs.

After three years of strong growth at Escondida, production is expected to fall in the 2016 financial year as a result of significant grade decline marking the low point in production for the remainder of the decade.

Following the completion of a low-cost de-bottlenecking project, annual capacity at the multi-mineral ore body Olympic Dam is expected to increase by about 50,000t from the 2018 financial year.

Productivity in the company's coal business has improved significantly in the last two years, with unit costs cut by 37% in metallurgical coal and by 21% in energy coal.

In the 2015 financial year, the group is targeting a further 10% reduction in unit costs at Queensland Coal and a 15% decline in unit costs at New South Wales energy coal by the end of 2016.

Energy