JOHANNESBURG (miningweekly.com) – Global mining giant BHP Billiton, which posted a net loss of $5.6-billion for the six months to December 31, on Tuesday announced that it would implement a new operating model aimed at creating “a more agile company” that was ready to respond to the challenges and opportunities presented by a rapidly changing global marketplace.

The company, which on Tuesday warned that weak commodity prices would continue for the foreseeable future, expected the new operating model to ensure that BHP became a much simpler organisation focused on geographic operating regions and supported by globalised functional services. 

CEO Andrew Mackenzie said the changes were a continuation of the company’s “simplification journey”.

“[The changes] are made possible by the recent demerger of South32 and well-timed asset divestments and reflect our continued commitment to improve productivity. At the core of the new model will be assets dedicated to safety, volume and cost, enabled by functions integrated globally and largely co-located with the assets,” he explained. 

Mackenzie stated that both assets and functions would have fewer layers and, hence, require fewer people to lead and run the organisation. He expected the closer connection between management and operations to promote greater efficiency, rapid sharing of best practice and adoption of new technology to improve safety, productivity and learning, as well as improve risk management. 

“Our focused portfolio of tier-one assets will now be managed through a vastly simplified operating model, positioning BHP Billiton to create new opportunities for value and growth into the future.”

BHP Billiton's minerals production operations would be organised into two regional units – Minerals Australia and Minerals Americas. The company's oil and gas exploration and production operations would continue to be housed within a global petroleum unit, reflecting the operating environment in that sector.

The changes, which were effective March 1, meant that one less president role would be required in Australia, with current iron-ore president Jimmy Wilson to leave the company.  

The role of the company’s petroleum president would change to become more closely focused on operations and would no longer include direct oversight of functional and business administration. Therefore, Tim Cutt, who is currently the company’s petroleum president, would also leave BHP Billiton.

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The $5.6-billion interim loss was a significant reversal from the $5.3-billion profit achieved for the six months ended December 2014.

Low commodity prices resulted in a 37% year-on-year drop in revenue to $15.7-billion, from $24.8-billion in the previous year, which resulted in underlying profit shrinking by 92% to $412-million, from $4.8-billion for the same period in 2014.

“We now believe the period of weaker prices and higher volatility will be prolonged. The adoption of a dividend payout ratio will further support BHP Billiton’s financial
strength, while providing flexibility at the bottom of the cycle and ensuring discipline at the top," said BHP Billiton chairperson Jac Nasser.

"BHP Billiton ended an era today, doing away with its once-sacrosanct progressive dividend and introducing one based on a minimum 50% payout ratio. Such a form of reduction was expected, given the onerous annual payout and the lead set by its peers, including Rio Tinto, and the flexible dividend now appropriately reflects the cyclical earnings characteristic of the mining industry in the 'new normal'.

"We expect that it will also appease the ratings agencies, enabling the company to maintain its A rating. This places it on a yield close to 3%, versus the 11% yield it had been trading on," specialist bank and asset manager Investec commented in a market commentary note.

“We have not made these changes lightly. They are a determined response to changing markets that will also help us take advantage of the significant opportunities ahead,” stated Nasser.

He further stressed that the company remained “strongly committed” to returning cash to its shareholders in every reporting period and that BHP Billiton’s board would assess the possibility of returning additional cash over that implied by the 50% payout ratio, as it had done during the period under review.

Mackenzie noted that the divestment of $7-billion of assets and the demerger of South32 had left the group with a focused portfolio of large, low-cost, long-life assets in a set of favoured commodities.

“We are operating our assets more productively with $10-billion of gains achieved since 2012. We expect to realise a further $2.1-billion of gains in the 2016 financial year, when adjusted for the impact of lower grades at the Escondida copper mine.”

He added that the company would also reduce capital expenditure by $3.5-billion for the 2016 and 2017 financial years.

BHP's share price was trading 2.62% higher on Tuesday, while its share price on the JSE fell by 2.64% in early morning trade.