The BHP edition

Resources Corner

BHP Billiton boss Andrew Mackenzie this week spoke of the global miner’s ambition to boost productivity by generating more output from existing facilities and lower unit costs, moves that will increase cash cost reductions and lift returns from investment. Speaking to an investor briefing in Houston, Mr Mackenzie said:
 
“The company’s productivity agenda has the potential to create more value than anything else we do...By generating more volume from our existing equipment and lowering unit costs, we will continue to build on the $US2.7 billion reduction in controllable cash costs delivered in the 2013 financial year.”
 
According to Mr Mackenzie, the mining giant is chasing an increased rate of return on investment via increased competition between businesses for capital as well as the lowering of project costs. BHP is aiming for a 25 per cent cut in capital and exploration spending in fiscal 2014 and tipping that investment will fall again in the 2015 financial year. The company has maintained its production guidance, tipping growth of 16 per cent in copper equivalent terms over the next couple of years. Meanwhile, Mackenzie says petroleum will comprise nearly a third of BHP’s production growth forecast in the next two financial years, just behind iron ore with 37 per cent. Of the other divisions, coal is tipped to see 19 per cent of total growth and copper 10 per cent, with other businesses expected to contribute just 2 per cent. Mr Mackenzie says BHP will pursue its goals of streamlining its business, and has executed six transactions since the beginning of the 2013 financial year, reaping $US6.5 billion.
 
Meanwhile, BHP says it is bullish about the Bass Strait gas operations it shares with ExxonMobil, and has revealed hopes of another two decades of production there. According to media reports, BHP's president of conventional oil and gas, Steve Pastor, says the area could still be producing after 2030. The amount of gas remaining in Bass Strait has been up for debate, as increasing exports from Queensland and restrictions on unconventional gas development in Australia's south-east increase demand on supplies from the Bass Strait. But Mr Pastor says BHP sees the remaining wet gas resources
 
Elsewhere, BHP says said it plans to spend $4 billion a year to grow its US onshore oil and gas production to 500,000 barrels of oil equivalent a day by the financial year 2017. Media reports say the mining giant will invest in its US shale gas business, taking it to 200,000 barrels of liquids a day during the same period ending June 30, 2017. As a result, the US onshore business is expected to be self-funding in the 2016 financial year before generating almost $3 billion of free cash flow in the 2020 financial year.
 
Resource company headlines
 
Rio Tinto Limited (ASX:RIO)says it has already exceeded its target of cutting $2 billion in operating costs by the end of the year and it will focus on paying down debt next year. The mining giant announced in February plans to cut operating costs by $2 billion through such measures by the end of the year. Chief Executive Officer Sam Walsh told analysts at an investor day presentation that the miner has already surpassed that target and remains on track to achieve $3 billion in operating cost savings next year compared with 2012. Mr Walsh says Rio is improving productivity and setting new production records while reducing the company’s spend. In exploration, Rio has already exceeded this year's target of $750 million in cost savings while in its energy division, the company has delivered $600 million in savings during the first 10 months of the year.
 
OZ Minerals Limited (ASX:OZL)says its 2013 production is on track to meet forecasts, with costs to be at the lower end of guidance. The company has reaffirmed full-year production guidance of 70,000 tonnes to 75,000 tonnes of copper and 120,000 ounces to 130,000 ounces of gold. The miner said C1 costs are on track to be at the lower of the guidance range of $2.09 to $2.25 per pound of payable copper. Oz Minerals says open pit operations faced a number of issues in the first part of 2013, as previously reported, as the attempt to maximise ore production led to inefficiencies in the pit.
 
Treasurer Joe Hockey has removed certain foreign investment conditions placed on Chinese state-owned enterprise Yanzhou Coal Mining Company that restricted its ownership ofYancoal Australia Limited (ASX:YAL). Mr Hockey says the conditions require Yanzhou to reduce its ownership in Yancoal from 100 per cent to less than 70 per cent. They also required Yanzhou to reduce its interest in Yancoal’s former Felix Resources coal mining assets to less than 50 per cent by the end of December 2013 and in the Syntech Resources and Premier Coal mines to less than 70 per cent by December 31, 2014.
 
Woodside Petroleum Limited(ASX:WPL)has cut its production target for 2013 and reduced its estimated investment expenditure after deferring spending on its Leviathan project in Israel. Woodside says it expects to produce between 86 and 88 million barrels of oil equivalent in 2013, after previously offering guidance of 85 to 89 million barrels of oil equivalent. The group expects 2014 production in the range of 86 to 93 million barrels of oil equivalent. Its total exploration and capital expenditure for 2013 has fallen to $US1.1 billion from previous guidance of $US2.3 billion after it deferred expected Leviathan expenditure. Woodside expects 2014 investment expenditure of between $US2 billion and $US2.4 billion.
 
Senex Energy Limited (ASX:SXY) has generated more than 450 oil and gas leads after a year-long prospectively work across its majority held permits in South Australia’s Cooper-Eromanga Basin. Managing Director Ian Davies says the program highlights the enormous growth potential of the Basin, driven by 3D seismic and other new technologies that have helped to revolutionise the North American oil and gas industry.
 
US basedPeabody Energy Australia Limited (ASX:MCC) will close its Wilkie Creek coal mine in South East Queensland, costing about 200 workers their jobs. Peabody’s Australian President Charles Meintjes says the company has completed a strategic review of the mine and has now begun the process of winding down operations. Mr Meintjes says Peabody is committed to minimising the impact of the closure on its employees and will assess options for redeployment where possible. The company says the 200 employees and contractors have been notified of the move.
 
Energy Resources of Australia’s Limited (ASX:ERA) Ranger uranium mine will not be allowed to function again until federal agencies are satisfied it is safe, after Industry Minister Ian Macfarlane imposed a formal suspension on the controversial mine. Mr Macfarlane's move came after a briefing with ERA's new chief executive, Andrea Sutton, where the pair discussed the recent leakage of radioactive uranium particles and industrial acids at the mine. ERA shares sank more than 12 per cent yesterday, before Mr Macfarlane clarified his stance in a statement. The Northern Territory arm of Worksafe is understood to be launching an investigation into the incident, and a co-operative taskforce has been set up between the federal and territory agencies that are investigating the spill. ERA, which is majority-owned by Rio Tinto Limited (ASX:RIO), had already indicated that processing would be stopped for an indefinite time.