(Minews) - BHP Billiton chief executive Andrew Mackenzie has blasted panicked calls for a halt to Pilbara iron ore production growth to prop up prices of the steelmaking raw material.
Writing in The Weekend Australian, and in an exclusive interview, Mr Mackenzie said restricting supply — as controversially suggested by West Australian Premier Colin Barnett and Andrew Forrest’s Fortescue — would be a futile exercise.
“The only certain effect of stalling production will be to reduce Australian exports,’’ Mr Mackenzie said.
Reflecting his deep concern with calls for restricting production growth in iron ore, Mr Mackenzie warned there were potential global free trade implications. He said less supply from a dependable supplier such as Australia could be seen to possibly generate geopolitical instability, leading to a lower level of world economic growth.
“I strongly believe that the world will be best served by a sustainable supply of commodities at a fair price, and that capital resources should be directed towards the most efficient sources of that production in a manner that the world gets them as cheaply as possible, in terms of cost, and with the greatest environmental performance and the smallest environmental footprint.’’
BHP recently shipped its billionth tonne of iron ore to China and has spent $US25 billion ($32bn) in the past 10 years on more than doubling its Pilbara production. It is the second-lowest-cost producer behind Rio Tinto, with both companies continuing to experience what Rio last week described as fantastic margins, despite lower prices.
Previous guidance from BHP has its production rising to 245 million tonnes in 2015, and eventually 290 million tonnes. The growth comes as iron ore prices have plunged 50 per cent to five-year lows.
Mr Barnett last year sensationally accused BHP and Rio of flooding the market to force prices down, hurting the WA economy and the rest of the industry.
And this week, Fortescue chief executive Nev Power renewed his attack on the production growth, claiming it was causing an “apprehension of excess supply’’ that was damaging to iron prices, although Fortescue has added more tonnes in the past four years than either BHP or Rio.
“The low iron ore price, I would argue, is not benefiting anybody. It has drawn an enormous amount of money out of the Australian economy, and the WA economy, and out of the industry here generally,’’ Mr Power said.
While it stopped major investment in iron ore in 2012, BHP is now sweating the assets. “Any growth you see from us is predominantly by completing investments and making the investments that we have made even more productive,’’ Mr Mackenzie said. “Anything less than that would mean giving up revenue, giving up royalties, giving up the stimulation to employment and innovation that are so important for this country’s future.
“If there had been a pullback of production out of the major Australian producers, it’s very questionable as to whether that would have had any impact on the downward drift in the price.’’
“And that would have simply ceded production to other countries, who would’ve taken up that slack.’’ he said.
Mr Mackenzie is set to announce BHP’s December half profit on Tuesday. The plunge in iron ore prices — and more recently oil — is tipped by analysts to have forced BHP’s profit 35 per cent lower to $US4.9bn.
Investor calls for greater returns is nevertheless unrelenting. The retreat in commodity prices from the elevated levels of the 2002-12 resources boom poses a particular challenge.
Mr Mackenzie is more than comfortable with BHP’s record.
“Show me a big company that has outperformed us in terms of shareholder returns — 400 per cent over the last 10 years, $US64bn back to the shareholders. There is no other big company that can rival that, with the exception of Apple.
“Now we are in a different environment which is not going to give you the high prices. We have to figure out how we can do that again over a 10-year period.’’
He said there would be an agenda of “focusing on these amazing ore bodies and running them like advanced manufacturing operations to get to undreamed levels of productivity.’’
“Right now, we’ll make most of our money by stabilising and making our coal and iron ore productions more productive.’’
On the broader economy, Mr Mackenzie said Australia had become more “investable’’, thanks to the abolition of the mining and carbon taxes. “The most important agenda now for us is to use that as a basis to continue to improve the international competitiveness of the Australian resources and, therefore, mining industry. And much of that is down to the leadership we provide.’’
He would not be drawn on the uncertain political environment in Canberra and what that meant for the pace of economic reform. But he emphasised the importance to business confidence of regulatory certainty and political stability.
He also outlined an agnostic approach on the nuclear power debate reignited by South Australia with its move to establish a royal commission into the potential for it to become a reality in the state. He said ownership of the Olympic Dam deposit in that state’s outback, the world’s biggest uranium deposit, did not alter that stance.
“I think that’s really for governments and communities to decide,’’ Mr Mackenzie said.
“We’ve been very clear that one of the advantages of this company is that we are, to some extent, agnostic in terms of growth as to how the world chooses its energy futures. We’re in oil, coal, gas, nuclear — very much through our uranium deposit in Olympic Dam and potentially more around there in the very long term. And then we’re very invested in renewables because they make much more use of copper than other sources of electricity generation.
“So we have the portfolio that can adjust as the world makes up its mind about energy futures. But we’re not completely sort of sitting there waiting for the world to decide. We’ve said that as you move to a more lower-carbon world, then it is appropriate to create more space in the portfolio for renewables and for nuclear. But ultimately it’s not our decision, it’s for others to decide.’’
But he said BHP would be sharing “some of our ideas’’ with the commission.
