BHP becoming lean and mean

Yesterday BHP Billiton released a presentation that they gave at The Bank of America Merrill Lynch Metals, Mining & Steel Conference (quiet a mouthful to say). The highlights of the presentation were that during the current financial year there have been significant improvements in productivity with truck utilisation up 8% and their digging fleet utilisation up 10%. Increased productivity is great news for shareholders, invested capital is now producing greater returns, which brings down operating costs going forward.


Another focus was their drive towards core assets and to bring down their capital and exploration expenditure going forward. The rational for bringing down the expenditure is that less capital available increases the competition for it among different projects. The end result being that only the best projects are selected. The reason for moving towards their core assets is given in the slides, it is a bit disjointed due to it being bullet points but it gives you a good idea.

• We have been progressively simplifying our portfolio for more than a decade... Our major iron ore, copper, coal, and petroleum assets demand our focus (because they) generate the highest margins and deliver a superior return on incremental investment.
• Continued simplification will create an unrivalled portfolio of large, long-life, low-cost and expandable assets diversified by commodity, geography and market.

So in short quality assets give the best returns.

Part of their plan to focus on their core assets, BHP Billiton this morning announced that they were reviewing their Nickel West (Australia) operations, this is one of their two Nickel assets, the other being in Columbia. What this means is that they are looking at selling part or all of the assets associated with their Australian Nickel operation. The decision to review the assets fits with their plan going forward as their resource grouping of Aluminium, Manganese and Nickel only contributed 1.9% to EBIT in the previous quarter.


As an investor you want to see a company becoming more efficient and keeping a close eye on their capital investments. The best assets give the best returns and if an assets does not meant this criteria, then the company can return capital to the investors so that we can allocate it elsewhere.