BHP Billiton to squeeze more iron volume at lower cost from mines - CNBC Africa

BHP Billiton to squeeze more iron volume at lower cost from mines


by Reuters 0

Iron ore prices have fallen 40 per cent this year alone. PHOTO: Wikimedia

This as it aims to overtake rival Rio Tinto as the world’s lowest-cost producer.

“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 journalists in a video conference.

The focus of mining companies has shifted towards cost-cutting as iron ore prices have dropped from about 190 dollars a tonne in 2011 to less than 80 dollars now, falling 40 per cent this year alone.

BHP, the world’s third-biggest iron ore miner, said it would boost the annual output rate from 225 million tonnes at end-2013 to 290 million in the next few years.

(READ MORE: Demerger on the cards for BHP Billiton)

At the same time, it expects to cut the cost of that expansion to about 30 dollars per tonne, or overall capital spending of about two billion dollars, which is well below a previous estimate of under 50 dollars a tonne.

[DATA BIL:BHP] is also reducing average unit production costs, excluding freight and royalties, which are now 25 dollars per tonne, down from 27.50 dollars for financial year 2014 and moving lower.

“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.

BHP hopes to achieve the lower costs by cutting its spend with contractors, chopping the headcount by a few hundred people and benefiting from economies of scale.


Wilson 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.

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.

(READ MORE: BHP Billiton delivers high production figures)

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

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

“We don’t take any joy from people losing their jobs because a company closes, but at the end of the day charity starts at home,” he said. “We have to run our business as hard and as well as we physically can. We have a responsibility to our shareholders.”