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PERTH (miningweekly.com) – Mining giant BHP Billiton has widened its productivity gains expectations by a further $500-million between now and 2017.
In October, the miner announced that it was targeting productivity gains of at least $3.5-billion a year by the 2017 financial year, with CEO Andrew Mackenzie saying at the time that this would be achieved through a spin-off of aluminium, noncore coal, manganese, nickel and silver assets into an independently listed company.
Mackenzie on Monday said that BHP was now targeting $4-billion of annualised productivity gains in its remaining portfolio of core assets by the 2017 financial year.
“By significantly simplifying the portfolio, the proposed demerger will allow us to redesign BHP Billiton and create an organisation that supports better productivity. 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.”
Mackenzie noted that BHP could also bring senior management closer to the operations, reduce duplications and cut functional costs to maximise shareholder value.
“By focusing on the productivity of our largest business, we can deliver a step-change improvement in performance.”
Since announcing the demerger plans, BHP has been able to define the potential benefits in more detail, Mackenzie added, saying that the productivity-led gains of more than $4-billion within the core portfolio would include a minimum reduction of about $2.6-billion a year in cash costs.
Improved capital productivity would allow for planned investment to be reduced from $14.8-billion to $14.2-billion in the 2015 financial year, and to $13-billion in the 2016 financial year, with no change expected in the production growth.
Meanwhile, BHP on Monday announced that the company was targeting a 10% reduction in the unit costs at its Queensland coal operations during the 2015 financial year, and a 15% decline in unit cash costs at its New South Wales energy coal operations by the end of the 2016 financial year.
Coal president Dean Dalla Valle noted that the division’s strategy and early focus on cost has already delivered significant productivity gains against the backdrop of the falling commodity prices, with about $2.4-billion in cost and volume efficiencies already imbedded.
Unit cash costs from the metallurgical coal division were down 37% in the last two years, while the energy coal division’s unit cash cost was down by 21% in the same period.
During 2014, BHP reduced its labour costs by 23% following a significant number of staff cuts since the start of the year, the latest of which saw a further 150 workers being taken off the Mt Arthur payroll, in the Hunter Valley.
The possibility of further job losses also still remains, with Dalla Valle saying that although the company had no specific target in mind, it would not hesitate to cut costs.
“We will continue to make adjustments in our business as we go, and it's not our goal to run out and reduce staff, but if we need to, we will.”
Dalla Valle noted that the coal division had also identified initiatives to deliver more volumes from existing equipment, at lower unit costs and had systematically targeted external spend, reducing supply expenditure by about $400-million, compared with 2012.
He added that BHP would continue its focus on lowering external supply expenditure by reducing contractor stripping costs, lowering contractor rates, and adopting the rapid tendering of key inputs through supply innovations.
Post the demerger, the coal division’s operations would reduce from 19 to 12, allowing BHP to sharpen its focus on its core assets.
“The proposed demerger will provide additional simplification opportunities and concentration of operations, and for the coal division, we will be around 40% smaller post demerger, so this also poses opportunities for us,” Dalla Valle said.
The metallurgical operations were expected to deliver record volumes of 47-million tonnes by the 2015 financial year, while the energy coal operations would deliver a combined 73-million tonnes.
Meanwhile, the miner had also identified cost saving initiatives at its Escondida copper mine, in Chile, where unit costs were expected to fall by 30% in the three years until the end of 2015.