BHP Billiton upgraded its full-year iron ore output target, as the world’s biggest miner ramped up production to capture more of a slower-growing market for raw materials.
Shares in BHP posted their biggest one-day gain in more than three months on Tuesday, as chief executive Andrew Mackenzie, who promised a “relentless” focus on productivity when he took the top job in May, said the miner’s efforts were paying off.
“There’s no better example of that than in our iron ore business,” he said, pointing to faster ore crushing and more efficient rail transport to the port that helped boost its full-year iron ore forecast by 2.4 per cent to 212 million tonnes.
Miners are cutting costs and driving assets harder as slowing demand growth for raw materials from China and elsewhere puts more emphasis on economies of scale to keep costs down.
BHP reported a 23 per cent rise in iron ore output in its quarter ended September 30 from a year earlier, boosted by a multi-billion dollar expansion of its Australian mines.
Quarterly petroleum output hit a record, with liquids production rising 16 per cent, helped by a shift at its U.S. shale holdings to focus more on oil production as American gas prices sag.
Its Eagle Ford oil field, one of the most prolific in the United States, showed a 29 per cent rise in oil output quarter-on-quarter.
BHP also stuck with its full-year target for output of 250 million barrels of oil equivalent (boe), despite suggestions from some analysts there was a risk of underperformance because of weaker offshore Gulf of Mexico production.
ERA OF AUSTERITY
Mackenzie reiterated that BHP would take tough decisions on projects that failed to meet the company’s investment criteria in the new era of austerity that has swept global miners.
BHP has already cut planned spending for 2013/14 by 25 per cent to $16-billion, and has earmarked a further drop for the following year. It is looking to sell assets and focus on iron ore, petroleum, copper and coal.
“The large, top-tier mining companies have learned lessons from the recent downturn,” said Peter Esho, an analyst with Invast Financial Services in Sydney.
“Their efforts to cut costs and focus on ramping up volumes is so far progressing well, good enough to offset any weakness in commodity prices.”
BHP on Monday forfeited nine oil and gas exploration blocks in India, citing an inability to carry out exploration operations there.
At the same time, the miner signalled a willingness to spend heavily in businesses it deems most profitable.
In Australia, it said it had accelerated the first stage of development of its new Jimblebar mine by six months, which should add some 35 million tonnes more iron ore annually to start in about 18 months.
The miner also held out the possibility of expanding the lode to yield as much as 55 million tonnes a year.
BHP’s rivals are also expanding in Australia’s iron ore belt. Rio Tinto is racing to lift annual output by 10 per cent to 290 million tonnes, while Fortescue Metals Group is well on its way to raise production to 155 million tonnes.
Outside of Australia, the world’s biggest iron ore miner, Brazil’s Vale, is also expanding output to a planned 480 million tonnes by 2018.
BHP is also investing $2.6-billion in its Canadian potash project and funding its 57.5 per cent share of a $3.4-billion capital project at Chile’s Escondida copper mine.
The miner’s Australian-listed shares rose 2.4 per cent to $37.05 in an overall market up 0.4 per cent.