6 de octubre de 2014 / 7:28 / en 3 años

UPDATE 3-BHP aims to slash iron ore costs to become cheapest supplier

* Miners’ focus has shifted to cost cutting on weak iron ore price

* BHP targets 25 pct cut in iron ore production costs

* Aims for production cash cost below $20 a tonne

* Big miners squeeze out smaller miners (Adds BHP iron ore chief, analyst comments)

By Silvia Antonioli and Sonali Paul

LONDON/MELBOURNE, Oct 6 (Reuters) - BHP Billiton aims to cut its iron ore production costs by more than 25 percent and squeeze more tonnes from its mines as it aims to overtake rival Rio Tinto as the world’s cheapest producer, the world’s largest miner said on Monday.

BHP, the No. 3 iron ore producer behind Brazil’s Vale and Rio Tinto, outlined the cost-cutting and expansion plan even as iron ore prices have slumped 42 percent this year, as it sees demand picking up over the medium term.

“We will continue to squeeze the lemon because at the end of the day it’s just so value accretive,” Jimmy Wilson, the head of BHP’s iron ore division, told reporters in a video conference ahead of an analyst tour of its West Australian mines.

Miners’ focus has shifted to cost cutting as iron ore prices have dropped from about $190 a tonne in 2011 to less than $80 now, sinking to five-year lows as supply growth from the mega producers has exceeded demand growth by more than two to one.

BHP said it aims to cut production costs, excluding freight and royalties, to less than $20 a tonne in the medium term, from $27.50 for financial year 2014. That compares with Rio Tinto’s cash cost of $20.40 a tonne in the first half of 2014.

“The name of the game in the past was volume above and before everything else. Now cost is much more important and we are finding a lot more opportunities,” Wilson said.

While scale is helping BHP cut production costs, it has at the same time managed to slash its expansion costs, thanks to debottlenecking its harbour at Port Hedland and getting more out of its equipment rather than building new infrastructure.

It now expects to boost its output capacity by 65 million tonnes to 290 million tonnes a year by June 2017 for 40 percent less than previously flagged, at a cost of about $1.95 billion.

UBS analysts said BHP’s cost guidance and expansion cost estimate were well below market expectations and would increase UBS’s valuation on BHP by about $7 billion, or $1.30 a share.

“However, we suspect today’s announcement may see the market focus on long-run iron ore price downside risks given falling capex/costs,” UBS analyst Glyn Lawcock said in a note from the analyst tour.

Indeed, BHP and Rio Tinto’s Australian shares both fell more than 2 percent on Monday, with BHP sinking to a 15-month low of $32.68.

FOOT ON THE ACCELERATOR

BHP hopes to achieve the lower costs by reducing its spending with contractors, such as maintenance operators, chopping the headcount by a few hundred people and by focusing on mining around its four existing hubs.

“With annual sustaining capex of approximately $5 per tonne over the next five years, we aim to be the lowest-cost supplier to China on an all-in cash basis,” Wilson said, adding that was just an aspiration.

“I‘m acutely aware that Rio’s not going to stand still either,” he told reporters.

He said the company would continue to accelerate production even if iron ore prices keep falling, which analysts expect to happen over the next few years.

“We continue to see healthy demand growth for iron ore in the mid-term as Chinese steel production is expected to increase by approximately 25 percent to between 1.0 and 1.1 billion tonnes in the early to mid-2020s,” he said.

SQUEEZED OUT

Falling prices have already hit margins across the industry and made many smaller mining companies unprofitable.

Wilson said 40 million tonnes of Chinese production have already exited the market and that new low-cost supply from Australia will displace output from other regions such as Iran, Mongolia and Kazakhstan.

By 2015, major producers in Brazil and Australia will account for 1.15 billion tonnes or 83 percent of world seaborne ore trade, according to Australian government data, up from 71 percent just three years before.

Wilson said the closure of smaller producers was an unfortunate side-effect of market conditions.

“At the end of the day, it’s a tough old world out there,” he said. “Obviously we have to do what we have to do for our business, and we take no joy in other businesses being impacted.” (Editing by Jane Baird, Jonathan Oatis and Ed Davies)

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