BHP to Boost Production Despite Weak Prices--2nd Update
May 10 2016 - 12:09PM
Dow Jones News
By Alex MacDonald and Scott Patterson
LONDON--Mining giant BHP Billiton Ltd. plans to forge ahead with
investments to boost production, particularly in copper and energy,
despite a continuing rout in commodities prices.
In a presentation to investors Tuesday, BHP Chief Executive
Andrew Mackenzie outlined a plan to lift its current production by
more than 10% by investing in existing operations. He said the
development will cost less than $1.5 billion over a five-year
period.
BHP's assets "have such high returns that they work even at
these very low prices," Mr. Mackenzie said in an interview
following the presentation.
He said the company's plans are primarily focused on expanding
its own mines and wells, not on acquisitions. "You can't be focused
on acquisitions because you're dependent on so many other things,"
said Mr. Mackenzie.
Shares of BHP, down 44% in the past year, closed up 2.1% in
London, Tuesday.
Mr. Mackenzie in his speech said the miner's investments should
earn average returns of about 60% based on current analyst
forecasts of commodity prices.
He said BHP also plans to make investment decisions on at least
two big projects, one in copper and one in oil, within 18 months.
He expects capital expenditure to pick up next year.
Big mining companies like BHP have been hammered by a protracted
slump in commodity prices stemming from slower-than-expected global
growth and slackening demand in China, the world's largest consumer
of many commodities. Prices for some commodities, like oil, have
picked up in recent weeks, though some analysts have said prices
could fall again if Chinese growth remains disappointing.
Under Mr. Mackenzie's three-year stewardship, BHP has focused on
cutting costs, shedding assets and delaying big investments.
Despite those moves, Moody's Investors Service and Standard &
Poor's Ratings Services both recently cut credit ratings on the
company to A3 and single-A, respectively.
Earlier this year, BHP slashed its dividend by 74%, abandoning
its yearslong pledge to keep its annual payout steady or rising, as
it announced a $5.7 billion loss for the six months through
December.
The company's challenges go beyond the tough market. In
November, an iron-ore tailings dam at a BHP joint venture in Brazil
burst, killing 19 people and polluting more than 400 miles of
river. Last week Brazilian federal prosecutors filed a lawsuit that
could force BHP and its joint venture partner Vale SA to pay up to
$44 billion for cleanup and fixing environmental damage.
Mr. Mackenzie said in the interview that the company believes a
settlement reached in March, in which it agreed to spend as little
as 9.46 billion reals -- about $2.7 billion -- through 2030, was
the best solution since it will get cash to the communities
quicker. "We believe that is the fair way forward," he said.
Write to Alex MacDonald at alex.macdonald@wsj.com and Scott
Patterson at scott.patterson@wsj.com
(END) Dow Jones Newswires
May 10, 2016 11:54 ET (15:54 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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