BHP Billiton says it is looking for another $US600 million ($A800 million) in cost cuts in its coal business over the next year, as well as floating the idea it could sell off more assets – as it did in Indonesia several weeks ago.
But there wasn’t much mention, if at all, in expansion in the update on the company’s coal operations (http://www.bhpbilliton.com/investors/news/bhp-billiton-provides-an-update-on-its-coal-business) that was released to the ASX yesterday.
There has been persistent talk that BHP, through its BHP-Mitsubishi joint venture, is interested in buying an Anglo American coking coal operation at Moranbah, near the BMA mines in the rich Bowen Basin in central Queensland.
Anglo put the Moranbah North and Grosvenor Mines up for sale earlier this year along with its Moranbah South development project. Anglo is selling these as a package. Talks are said to be approaching finality with BHP (though BMA) interested in the Moranbah North and/or Grosvenor mines. The three have a combined estimated resource of half a billion tonnes of mostly hard coking coal.
But at the same time BHP management have made clear the company primary areas of expansion will be oil and copper in coming years. Coal was not mentioned (and not ruled out, it must be said). But the Bowen Basin is the heart of the company’s coking coal operations around the world and the coal from its mines is among the best globally.
For that reason buying another mine or two and a future development could underwrite decades of continuing production, without BHP having to explore or do its own development.
The president of operations for BHP’s Australian minerals division, Mike Henry, said the company had delivered $US3 billion of “productivity gains” since 2012 and would seek to deliver another $US600 million by end of the 2016-17 financial year.
He said the company could cut cash costs across its coal arm by a further 16% in a year’s time, on top of cost cuts of 25% since the end of the 2012 financial year.
“While cost compression has been evident across the industry, we continue to work hard under our new operating model to improve our performance,” Mr Henry said in the filing with the ASX.
BHP is targeting an 8% or 5 million tonne increase in coal production over the next year.
He said BHP has been "disciplined" in its responses to falling coal price, selling mines in Indonesia and Mexico, shifting mines in New South Wales and South Africa into its South32 spin-off and shutting in high-cost production at other mines.
But the company could look at further sell-offs or shut downs as it purses "further optimisation of our portfolio” he said.
Mr Henry said production of metallurgical coal (which is used in steel making) was underpinned by demand from China and the scarcity of high-quality production. In the short term he expects to see more supply forced to close as lower prices take their toll.
BHP also remains positive about the longer-term outlook for energy coal, despite the fact markets are oversupplied and will be for years to come, especially in China.
“Against the backdrop of greater uncertainty in the outlook for thermal coal, we are confident that base demand in emerging economies will remain resilient for decades to come and our higher quality coals position us well in an increasingly carbon constrained world.
“Rather than waiting for higher prices, we have been deliberate in shaping a quality, focused portfolio that allows us to deliver value in challenging market conditions and positions us well for an expected longer-term improvement in coal market fundamentals,” Mr Henry said.
BHP Billiton’s Coal business has delivered over US$3 billion of productivity gains since 2012 and is targeting another US$600 million by the end of the 2017 financial year.
“While cost compression has been evident across the industry, we continue to work hard under our new operating model to improve our performance,” Mr Henry said.
“Even in today’s difficult environment, all of our operations remain cash positive,” he added.
BHP shares fell 0.9% to $18.69.
