PERTH (miningweekly.com) – Mining giant BHP Billiton on Monday expanded on its projected $3.5-billion productivity gains, with CEO Andrew Mackenzie explaining that the simplified portfolio would reduce operating costs and improve capital efficiency.
“We are confident that our productivity drive will be accelerated by the demerger proposal we announced in August. A simpler portfolio, focused on our 19 core assets, will retain an optimal level of diversification while generating even stronger growth and margins.”
Post the planned demerger of the aluminium, nickel, manganese and silver assets, BHP’s focus would remain on its iron-ore, coal, petroleum, copper and potash assets.
Mackenzie noted that production from the core portfolio of assets was expected to grow by 23% over the next two years, until the end of the 2015 financial year, as BHP completed high return, brownfield projects and embedded projectivity-led volume gains.
“Our core portfolio includes a suite of development options that are expected to generate an average rate of return of over 20%. As our capital efficiency improves we will be able to create more value for less investment. We believe we can significantly reduce annual capital expenditure relative to our current plans while maintaining our growth trajectory,” Mackenzie said.
Looking at iron-ore, Mackenzie projected unit costs at the Western Australian operations would be reduced by about 25% over the medium term, after having fallen by 12% in the second half of the 2014 financial year.
Production costs in the copper business have also fallen despite grade decline, Mackenzie said, adding that unit costs at the Escondida operation, in Chile, declined by 22% in the last two years and were now forecast to fall by another 5% in the 2015 financial year.
At the Queensland coal operations, a 24% reduction in operating costs re-established the business as a leader in its industry, Mackenzie said.
“We expect to reduce unit costs by a further 10%, to below $90/t, in the 2015 financial year as we continue to increase throughput from our installed infrastructure.”
In petroleum, forensic benchmarking of every component of BHP’s onshore US drilling programme had significantly improved capital productivity, and drilling costs in the Black Hawk fell 16% in the 2014 financial year. Onshore US operating costs were also expected to improve with a 10% reduction forecast in the 2015 financial year.
“In the Eagle Ford and Permian we are forecasting liquids production of about 200 000 bbl/d by the 2017 financial year. This is expected to generate significant value as investments in our liquids-rich onshore US wells typically generate returns of over 50%,” Mackenzie said.
“In time, we expect to fully develop our Haynesville gas field given the quality of our acreage. As we look to improve the balance of liquids and gas across our petroleum portfolio we have initiated the marketing of our Fayetteville acreage. However, we will only divest the field if it maximises value for shareholders.”
The Haynesville and Fayetteville assets are in the US state of Arkansas.