BHP boss outlines savings

BHP Billiton will undertake a string of cost cutting measures aimed at improving efficiency and cash returns in the face of weak commodity prices.

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Chief executive Andrew Mackenzie said the potential benefits from the new targets were substantial.

“In recent years we have made great strides towards becoming the most efficient supplier of our chosen commodities and secured productivity gains of nearly $US10 billion,” he said in a statement.

“We believe we can go even further with a simpler portfolio and improve margins by reducing costs more deeply than the competition…

“Our pipeline of development projects has an expected average rate of return in excess of 20 per cent and we will continue to test all investment decisions against challenging criteria that include buying back our own shares,” he said.

The measures outlined by Mr Mackenzie included:

*Cutting unit costs at Western Australia Iron Ore by 21 per cent to $US16 per tonne during the 2016 financial year.

*Cutting unit costs at its Escondida copper mine in Chile by 16 per cent.

*Drilling costs per well in Black Hawk oil fields in the US to average $US2.9 million, a reduction of 20 per cent.

Mr Mackenzie said capital and exploration expenditure would fall to $US9 billion in the 2016 financial year from $US12.6 billion in 2015.

The reduction reflects ongoing improvements in capital productivity along with the deferral of some shale development and the Inner Harbour Debottlenecking project at Port Hedland.

In its onshore US business, BHP Billiton now anticipates capital expenditure to be $US1.5 billion in the 2016 financial year to support a development program with 10 operated rigs.

“We will continue to invest in our high quality projects to create long term value and support dividend growth,” Mr Mackenzie said.

“The iron ore and metallurgical coal markets are currently well supplied and we do not expect to invest significantly more in these businesses at this time.”

He said BHP Billiton believed grade decline in copper and field decline in oil will constrain industry production and support a recovery in prices over the medium term.

Mr Mackenzie announced the strategies ahead of the demerger of its South32 subsidiary, which will be a diverse metals and mining company producing alumina, aluminium, coal, manganese, nickel, silver, lead and zinc.

South32 is expected to begin trading on the Australian share market and the London stock exchange later this month.

The statement was released ahead of the Bank of America Merrill Lynch 2015 Global Metals, Mining and Steel Conference in Barcelona, shortly after the Australian market closed on Tuesday.

BHP Billiton shares finished 71 cents higher at $32.53.