Global mining giant BHP Billiton Ltd yesterday warned that it could scale back production at unprofitable operations as commodity prices softened because of economic uncertainty.
However, BHP chief Marius Kloppers said the firm’s flagship iron ore business was in good health despite weakening Chinese demand and insisted it would take a “fairly big event” to knock expansion plans worth A$27 billion (US$29 billion) off course.
“I think a more immediate problem is that ... given some of those price movements that you’ve seen, not all of our operations are making profit to the same extent at the moment,” Kloppers told ABC television. “That’s probably more the avenue that you’re going to see us act in, where an existing operation doesn’t make profit, we’re probably likely to say ‘look this is not making profit, let’s curtail production.’”
BHP posted a 5.5 percent fall in first half profits last week to US$9.4 billion, largely because of volatility in commodity prices, and Kloppers said iron ore had “clearly moderated a little bit” as China cooled.
However, Kloppers said freight costs from Australia’s resource-rich west coast to China were “as low as they’ve ever been” and iron ore shipments would be very profitable “even if that price comes back a little bit more.”
“We’re going to make very good returns on those projects,” the mining chief said.
Asked about the blockbuster merger of commodities titan Glencore International PLC and miner Xstrata PLC to create a huge US$90 billion group, Kloppers said the long-term trend was “always towards consolidation,” particularly in mining.
He would not be drawn on whether BHP was eyeing miner Anglo American PLC or had any other major plays in the pipeline.
“We never speculate,” Kloppers said, describing merger activity as an “opportunistic thing.”
“I have absolutely no doubt that over time we will do more transactions, but we’re pretty busy at the moment and it’s difficult for me to speculate on any individual transaction,” he said.
BHP bought shale gas giant Petrohawk Energy Corp for US$15.1 billion last year in a bid to diversify its business, following the failure of a US$39 billion bid for Canadian fertilizer-maker Potash Corp in late 2010.