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Productivity gains give BHP Billiton’s profit a lift

Productivity gains give BHP Billiton’s profit a lift

Photo by Bloomberg

18th February 2014

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

  

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PERTH (miningweekly.com) – Mining major BHP Billiton’s half-year attributable profit rose by 31% to $7.8-billion, helped by a substantial improvement in productivity and additional volume from a brownfield investment programme, CEO Andrew Mackenzie reported on Tuesday.

Underlying earnings before interest and tax increased by 15% year-on-year to $12.4-billion in the period ended December 2013.

“The commitment we made 18 months ago to deliver more tonnes and more barrels from our existing infrastructure at lower unit costs is delivering tangible results,” Mackenzie said.

He pointed out that annual productivity-led volume and cost efficiencies of some $4.9-billion were now embedded, and this was expected to increase to $5.5-billion by the end of 2014.

“This sustainable increase in productivity supported a 9% increase in the group’s underlying earnings before interest and tax to 38%, and a strong improvement in the group’s underlying return on capital to 22%,” Mackenzie said.

Production volumes across the company’s portfolio increased by 10% compared with the December 2012 half-year, with production records achieved across three commodities and ten operations, BHP said.

The company’s iron-ore operations in the Pilbara were the main contributor to this, as a series of value enhancing and debottlenecking initiatives within the business supported a $302-million increase in underlying earnings before interest and tax.

Iron-ore production increased by 19% in the December 2013 half-year to a record 98-million tonnes as Pilbara production rose to an annualised rate of 216-million tonnes. This record result reflected strong operating performance, the early delivery of production from Jimblebar and a series of volume-enhancing productivity initiatives, which included increased use for a number of relocatable crushers installed at our operating mines.

Total petroleum production for the December 2013 half-year of 120.4-million barrels of oil equivalent was in line with the prior period. A 9% increase in liquids production was underpinned by a 72% increase in Onshore US liquids and an 80% increase in Atlantis volumes.

This was offset by a 7% decline in natural gas production, owing to lower seasonal Bass Strait demand and natural field decline at Haynesville, following BHP’s decision to prioritise Onshore US development drilling in the liquids-rich Black Hawk region of the Eagle Ford.

Copper production increased by 6% in the half-year to 843 000 t, BHP reported. Escondida copper production, in Chile, increased by 7% to 564 000 t as several productivity initiatives supported increased mill throughput and recoveries, which more than offset lower ore grades.

Record half-year copper production at Antamina, in Peru, also contributed to the strong result as the operation benefitted from record mining and milling throughput, along with higher average ore grades.

Metallurgical coal production increased by 22% in the interim period to a record 22-million tonnes, while energy coal production was 37-million tonnes, in line with the previous corresponding period.

Meanwhile, BHP reported that capital and exploration expenditure was expected to decline by 25% in 2014, to $16.1-billion, before declining again next year.

“The group’s opportunity-rich portfolio remains a key point of differentiation. By maintaining strict financial discipline and increasing internal competition for capital, we intend to further differentiate ourselves by creating a more capital efficient organisation,” Mackenzie said.

By the end of the interim period, BHP’s ten low-risk brownfield projects were tracking to plan. The projects had a combined budget of some $17.5-billion.

With the successful completion of the Macedon domestic gas project in September last year, the group continued to build on its reputation for project delivery capability, Mackenzie said.

Another five projects handled first ore or achieved initial production, including the North West Shelf North Rankin B gas compression, in Western Australia, the Jimblebar iron-ore mine expansion, also in Western Australia, and the Cerrejon P40 coal project, in Colombia.

In July 2013, BHP announced an investment of $3.4-billion to construct a desalination facility which will deliver sustainable water supply to the Escondida copper project over the long term.

In August last year, the miner also approved a $2.6-billion investment to finish the excavation and lining of the Canada-based Jansen potash project production and service shafts, and to continue the installation of essential surface infrastructure and utilities.

BHP was expecting the global economy to strengthen over the balance of the 2014 financial year, providing continued support for commodities demand, albeit at more moderate rates of growth.

In the longer-term, the fundamentals of wealth creation and urbanisation should benefit general commodities demand, although the transition to consumption-led growth in the emerging economies should provide particular support for industrial metals, energy and fertilisers.

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

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