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#1
http://www.bhpbilliton.com/home/Pages/default.aspx

http://www.bhpbilliton.com/home/investor...fault.aspx

inside the lean australian

Matthew Stevens
2393 words
18 Oct 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

Mining BHP Billiton is ramping up production of iron ore as prices crash, confident fortune lies in a streamlined operation, writes Matthew Stevens.

'This is iron ore heaven," Pat Bourke says, as a massive hole swallows our sun-seared horizon. "This" is the well-spring of BHP Billiton's 45-year history in creating national wealth by digging up iron ore in the Pilbara. "This" is Mount Whaleback. And Bourke is the monster's latest general manager.

Bourke is second-generation BHP. His father retired as a general manager at the Port Kembla steel mill. He was a 40-year man and Bourke is just more than half way there. But BHP has long left Wollongong and its steel behind. And so has Bourke.

Mount Whaleback is the greatest iron ore deposit ever found in Australia. It moved its first tonnes in 1969 and it will be central to BHP's Pilbara production for another 20 years at least. The production hub created around it will continue pumping out ore for another 50 years beyond that.

But never in its long history has Mount Whaleback been as effectively harvested as right now. The mine is bigger, deeper and harder to operate than ever before. But Mount Whaleback is producing more ore with greater predictability that ever, and over the past three years the Newman hub that pumps its product west has increased volumes by 10 per cent annually, while the numbers of people and machinery deployed in the big pit has fallen just as consistently. And that says everything about the way our big miners have anticipated the end of the long explosion of commodities prices.

BHP and rival Rio Tinto have risked the ire of a cohort of powerful shareholders and consistently ploughed the riches generated by a once-in-a-century boom into the heavy metal infrastructure, technology and know­ledge that will sustain and grow Australia's place in the seaborne iron ore industry.

Australians seem always to have been profitably entertained by a mining boom. From the gold rush to the silver boom, from nickel to iron ore, we lap up the good times and, true to our tall-poppy-lopping nature, we don't mind the odd bust or two either.

One legacy of this enduring engagement is that mining is part of our national conversation. Nowhere else in the world is the iron ore price a data-point of television network news. As a result there is a relatively broad public awareness of both the travails of our iron ore and coal miners and of the idea that our stronger-for-longer mining boom has suddenly exhausted itself.

Back in 2003, just before China's economy overreached its ability to resource its growth, the mining sector accounted for 7.8 per cent of Australia's GDP. Last year, in the boom's final flush, that contribution hit 11 per cent. From the mid-1960s on, the Pilbara pretty much sat alone as the world's key seaborne trader. But Japanese frustration at our growing unreliability through the late 1970s saw a cartel of steel mills seed the ­Brazilian iron ore business. By the turn of the century we had surrendered market leadership to Brazil, despite its distance from Asian customers.

The investment phase of the mining boom has changed all that. Australian exporters, big and small, currently account front 42 per cent of the seaborne market, while Brazil's share has slipped to 26 per cent.

Australian went into the boom producing 200 million tonnes a year of iron ore. Over a decade more than $80 billion has been invested in building the mines, trains and port capacity that last year pumped out 579 million tonnes. The government forecaster expects production to surge through the 700 million tonne mark this year and top 900 million tonnes by 2019. with our share of the market by then to be 56 per cent.

But while Australian output is expected to grow at a compound annual growth rate of 6 per cent, the market for that product is only going to grow at around 2 per cent.

Here lie the seeds of the great iron ore paradox. The iron ore price has been smashed by 40 per cent this year as the market moved into surplus. The likes of BHP and Rio Tinto say this shift is structural and so it will persist. And yet both have plans to push more material into an already glutted market.

A latecomer to an iron ore party that seems already over is the Swiss commodities trader turned global miner Glencore. Its patently clever, enamel-hard boss is Ivan Glasenberg. He reads this expansion strategy as mutually assured minerals market destruction. This week he was joined in publicly challenging the iron ore king's shared expansion theology. Both Western Australian Premier Colin Barnett and Fortescue Metals Group chief executive Nev Power accused BHP and Rio of a collusive exercise of excessive market power that is aimed to hurt competitors by sustaining lower prices.

Each of these gentlemen have discreetly different axes to grind. Glasenberg has publicly expressed ambitions to force our biggest producer, Rio, into a merger. Barnett's budget outlook has been thoroughly undermined by falling iron ore prices. And Power is running a miner that, for all its sterling efforts, is the highest-cost Australian, which produces the lowest value-in-use export.

But the simple fact is that Fortescue's pathway to lower costs has been built around adding nearly 100 million new tonnes to the global system, and it is hard to believe that Power doesn't admire the logic driving his bigger competitors, even it he doesn't appreciate the outcome.

Needless to say, Rio and BHP reject any idea that they are acting collusively or anti-competitively. Each insists the growth ahead is about making the most efficient, highest-returning use of the capital that has been sunk into the Pilbara.

Power's bellicosity did not end with suggestions of collusion. In a recovery of Fortescue's foundation rhetoric, he suggested the majors were inspired to growth by the Third Force's arrival in the market and that Rio's and BHP's latest aspirations were as surprising as they were unwelcome. Power's rant has been described by one leading miner as "a game of distraction". Whatever the motivation, the claims do not match the record. Both the majors kicked off their long growth plans back in 2005. And both flagged in considerable detail the volume targets, timing and costs of the campaigns currently being completed back in 2010.

According to BREE, we have entered the third phase of the boom. The price boom is dusted, the investment boom is closing, but the production phase has just begun. And the additional 130 million tonnes that Rio and BHP plan to introduce to the market over the next three years or so should be received as productivity tonnes.

Over a decade of chasing new Chinese demand, BHP has added 150 million tonnes to its annual volumes. Those tonnes have come at about capital cost of about $US165 a pop, or $US25 billion in total.

The Global Australian has plans to add another 65 million tonnes to its capacity. But these new tonnes will come largely from more efficient operation of its massive infrastructure estate. BHP says the move from 225 million tonnes to 270 million tonnes will come without any significant capital spending and that the drive on to a peak of 290 million tonnes will cost no more than $US2 billion ($2.3 billion).

The analysts reckon the company is being conservative on cost and timing. BHP puts the capital cost of expansion at $US30 a tonne. Deutche Bank's Paul Young says it will cost $US15 a tonne ($US1 billion all told) and that the ramp-up to 290 will be under way by late 2016.

Should this lower cost case prove accurate, the average capital cost of BHP's growth tonnes since 2004 will come down to a ballpark $US120 a tonne. And that effectively slices years from the pay-back period and carves away at the hurdles for return on capital. It will also see BHP's core cash cost of production reduced to less than $US20 a tonne, giving the company an improved chance of achieving its ambition of winning the increasingly frantic race to the bottom of the iron ore cost curve .

But how can BHP add these tonnes so cheaply and quickly? Well, that is where the whole story gets interesting, at least for the mining boffins.

The increasingly fluid and brutal tectonics of the iron ore market don't hold a lot of interest for the likes of Bourke or his counterpart at BHP's new super mine, Jimblebar, Tim Day.

Each has watched over a multibillion expansion project that sees them in command of machinery that holds the potential to mine and ship 60 million tonnes per annum of iron ore. Now each is focused on the minutiae of performance that can make that happen.

At the mature Mount Whaleback operation, this means continuing to dig and move 110mtpa of waste and ore in a mine populated by half the number of giant shovels that used to stalk the pit. It means running trucks for 6000 hours a year rather than the 4200 hours of just two years ago. And it means reducing the downtime of trucks and ­shovels by spending $2 million a pop on mobile crib rooms that can be placed where people work.

And it means working ever more closely with the Perth-based operators that schedule everything that moves to, from and around the mine and that control all the machinery that doesn't move.

The $170 million remote operations centre (IROC) is based in glorious isolation on the 23rd floor of BHP's Perth office. If its three failsafe systems collapse in concert, there is a duplicate centre just 20 minutes away that can be switched on to replace it.

IROC opened last year and it has already become a hub of innovation through both bottom-up management and big data analysis. So far, for example, the remote operators have generated more than 4000 individual suggestions for mine-face improvements, while the way they individually operate their pieces of the mining puzzle is constantly assessed for differentiating instructions with the best of them then being baked into the operational hardware.

According to BHP's iron ore boss, Jimmy Wilson, the business's embrace of automation will happen "despite ourselves". Wilson is a determined second-mover. Being first brings it owns risks and Wilson has no time for operational risk.

BHP has two live experiments in mining automation. It is running autonomous drilling equipment at its Yandi mine and driverless trucks at Jimblebar. As things stand, the drilling piece is working rather better than the trucks. There are two sides to the success story of the robot drills, which spend their days making the holes that are filled with the explosives necessary to start the whole digging process. The robots work faster and are less destructive of their drill bits. And they have created a competitive tension that has seen human performance improve to match their speed – though not their ­sustainability. As a result the autobot drills will march across BHP sites in ever greater numbers. Getting human-leading productivity from the driverless trucks has been rather tougher. Jimblebar moves nearly 3 million tonnes a month of iron ore from 35 trucks. Nine of them are driverless. They represent 25 of the fleet but move only 16 per cent of mine material.

Another three robot trucks will join the fleet in the next few months and the trial will continue until next March. But there is a whole lot of work to be done to make them competitive with humans.

One reason for this is that Jimblebar's drivers set the standard at BHP. Having hit an operating hours target of 6200, they now have 6500 hours as their next line in the red dirt.

There is more to this truck out-performance though. Inspired by a piece of kit he saw at BHP's nickel business, Jimblebar's Tim Day has installed lots of large yellow frames around his mine. They are dragged form place to place and they allow for more rapid shift changes by the drivers.

So, what once took maybe 45 minutes now takes an average of six minutes. That might not sound much. But these mines a 24/7 operations, so this initiative adds 22 working days to a truck's annual active life.

Improving mine performance would be useless without similarly paced improvement across BHP's entire logistics chain. Here again, little things become very big very quickly. Decisions to spend $US300 million restoring the original Mount Newman railway (it is duel track most of the way now) and to install electronic brakes on all of its ore wagons mean BHP's railway will never again be a supply bottleneck.

Once the new braking system is across a fleet that will expand from 8800 cars to more than 9500, BHP can run heavier, longer trains more quickly and reliably than ever.

Four locomotives do the braking for the 268 wagons of these two-kilometre trains. It takes five kilometres to stop these things and 3km to get them up to speed again. It means curves are taken more slowly than they might be and that wagon life can be unnecessarily reduced by the stresses of the crush and pull of a life on the rails. Adding 16 new wagons to every train will cost $120 million and generate $780 million annually in additional tonnes (at an $US80 a tonne price). This will pay for itself in two months.

Getting brakes on the wagons will allow trains to run faster and use less fuel doing it. It will add 18 million tonnes to capacity at a cost of $US144 million.

At $80 a tonne, that means gross revenues of $1.4 billion. Which means this is even better ­business.

A classic example of what Jimmy Wilson calls his "relentless pursuit of the basics".

The writer was a guest of BHP Billiton.


Fairfax Media Management Pty Limited

Document AFNR000020141017eaai0001u
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#2
At the graveyard, BHP digs deep to cut costs
THE AUSTRALIAN OCTOBER 18, 2014 12:00AM

Matt Chambers

Resources Reporter
Melbourne
Costs and production for BHP.Costs and production for BHP.

FROM the top of what is left of Mount Whaleback, BHP Billiton’s oldest West Australian iron ore mine and arguably the nation’s biggest open-pit mine, the effects of a two-year-old productivity drive that has shaved more than $US1.5 billion ($1.7bn) a year off costs are clear to see.

Dozens of giant mining trucks, now surplus to requirements ­because BHP is doing the same tonnage with less, are parked at the top in what mine manager Pat Bourke calls “the graveyard”.

“All the equipment up there is what we’ve pulled up,” Mr Bourke says from a lookout on the other side of what was once a mountain but is now a 420m-deep open pit after 43 years of mining. “We’ll sell those.”

At the foot of Mount Whaleback, near the Pilbara town of Newman, about 50 light vehicles are impounded for the same ­reason.

Over at the miner’s newest ­Pilbara mine, Jimblebar, about 40km away, the efficiencies of a productivity campaign that has cut nearly a quarter of BHP’s iron ore cash costs have been baked in from the start.

They have seen the mine come on six months early, ramp up faster than expected and produce at a higher rate than budgeted. The changes that have been made throughout the organisation are not rocket science.

If anything, they seem so simple they beg the question of why they weren’t in place earlier.

At the mines, the focus has been on improving dump truck use through things such as mobile break rooms for drivers, to reduce truck travel, and changeover platforms that help slash the time a truck is not working when it changes drivers, from 30 minutes or more to just six minutes.

It doesn’t sound like much, but the changes mean the number of annual hours per truck has risen from 4500 three years ago to more than 6000 — a one-third improvement.

At Mount Whaleback, the number of giant shovels that load trucks has been reduced from eight to five and will soon be down to four. The changes have also meant thousands of job losses (including contractor positions) at WA iron ore, although some employees have been redeployed.

The leaps in productivity are being driven by a post-boom change in focus. Efforts and resources until recently directed at bringing on big-growth projects to feed what looked like insatiable Chinese demand have been redirected to cost-cutting.

As a result, what was once a $US20bn Outer Harbour expansion at Port Hedland has been shelved to focus on squeezing as much as possible out of the current inner harbour.

BHP iron ore chief Jimmy Wilson took over the position in early 2012 and started a productivity drive that accelerated across the whole company when a year later Andrew Mackenzie became BHP chief executive.

Mr Wilson says it has only been recently that his iron ore unit has not been focused on $US25bn of big infrastructure and mine construction projects designed to rapidly grow production over the past decade. “Only now have we got a little bit of runway — probably for the past eight months — in front of us, where there’s no (big) projects on the go,” Mr ­Wilson says. “That’s now enabled teams to really get in and start grinding away at some of this very, very fundamental and basic stuff.”

Iron ore cash costs have dropped from $US30 a tonne (loaded on a ship in Port Hedland) in 2011-2012 to about $US23. The target is now to get it below $US20.

Standardisation is a key plank in the productivity push, with trucks, excavators, trains and drills all being made the same. And it’s not just the equipment — benches, the platforms in open-pit mines made by blasting, are now standardised at 12m high across the operations. “There is no ‘there is something different at my site’, which is the traditional way most sites defend themselves against the push for productivity,” says Eduard Haegel, the head of iron ore mine production at BHP.

“‘There’s something unique about my place’ ... now there is absolutely nothing unique. It is apples for apples, and what that allows you to do is get standard ­reporting.”

That means there are no excuses to replicating successful innovations at other sites. Playing into this has been a switch from contractor mining to owner-operated mines, begun in 2011 partly for safety reasons after five deaths at WA iron ore in 2008-09.

The focus on productivity is also driving lower-cost expansions BHP is pursuing since rejecting the Outer Harbour expansion in 2012. Instead, Mr Wilson is focusing on low-cost expansion that does not need a whole lot more infrastructure. A year ago, BHP guided analysts that expanding beyond annual capacity of 225 million tonnes a year to 270 million tonnes would cost $US100 a tonne of capacity for a total spend of $US4.5bn. In August, that was downgraded to $US50 a tonne and the target rose to 290 million tonnes.

This month, the cost was cut to $US30 a tonne, leaving the total cost at $US1.95bn.

After touring the Pilbara with BHP this month, Deutsche Bank analyst Paul Young reported the costs were still conservative and could actually be halved to $US15 a tonne of annual capacity.

In contrast, the average cost over the past decade has been up to $US170 a tonne of extra capacity. This shows why investors almost unanimously approve of the expansions despite iron ore prices that have slid more than 40 per cent to about $US80 a tonne.

A key part of the capacity expansion in BHP’s Pilbara railway is building longer trains that can carry more weight.

This is being done by increasing the maximum carrying capacity of the axels and putting in electronic braking that slows all the rail cars at the same time.

What is effectively a train parking area at the new Mooka marshalling yards, 30km from Port Hedland, is also providing big gains by allowing trains carrying certain ores (BHP has a few different types) to go to the right ship at the right time, rather than dumping it a stockpile and then moving it again, leaving the ore wasting time and space in stockpile yards.

This makes it what BHP calls a “floating stockpile”, which will play a big part in the expansion to 290 million tonnes.

One unexplained piece of the expansion puzzle is how BHP can export 290 million tonnes, or more, out of the constrained inner harbour at Port Hedland, which it shares with Fortescue Metals Group, Atlas Iron and Gina Rinehart’s Hancock Prospecting.

It appears the company is relying on the Pilbara Ports Authority to increase what it has previously stated as the 495 million tonne-a-year maximum capacity of the harbour.

“We’re all working with the Port Authority to actually up the volume there, and I’m convinced that will be a story that has a positive ending,” Mr Wilson told investors this month.

“You always look for win-win outcomes, and this is a win for us, a win for FMG, a win for the port authority and a win for governments, because the more we ship, the more royalties there are, the more taxes we pay.”

Alternatively, BHP may be relying on one of its Port Hedland neighbours to fold in the face of higher prices or not take up unused allocation.

Matt Chambers travelled to WA as a guest of BHP Billiton.
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#3
Iron ore flood to continue if profitable, says BHP
THE AUSTRALIAN OCTOBER 18, 2014 12:00AM

Matt Chambers

Resources Reporter
Melbourne
BHP turns the screw on competition

BHP Billiton iron ore chief Jimmy Wilson says the majors will keep flooding the over­supplied iron ore market with new supply until the price falls to a level where they do not see decent returns.

And with China’s state-owned iron ore mines now all expected to keep producing, even at a loss, the view within BHP ­appears to be that the price will fall to a level where Fortescue Metals Group and Brazil’s Vale will face decisions on whether to cut production.

“We’ll oversupply in the medium term, and how that plays out just depends on how quickly the price gets to an inflection point where you drop below inducement price for the majors,” Mr Wilson said.

“When you start dropping below that inducement price, capital will no longer be deployed and you’ll get to a ­situation then where demand starts outstripping supply.”

Mr Wilson would not say what the inducement price was.

But UBS analysts took a stab this week and as a result cut long-term iron ore price assumptions from $US89 a tonne to $US75.

“The big three’s (BHP, Rio Tinto and Vale’s) projects have incentive prices of around $US55-$US90 a tonne, with an average of $US75,” the bank said.

Iron ore prices have slumped faster than the majors expected this year, falling from $US135 a tonne to about $US80 as relentless Australian expansions by BHP, Rio Tinto and Fortescue have put the market into oversupply for the first time in a ­decade.

Compounding the over­supply has been the fact high-cost Chinese production has not been withdrawn from the market as quickly as expected.

Both BHP and Rio have noted in the past fortnight that the 140 million tonnes of state-owned (as opposed to private) annual production is still operating at full speed, and both miners now believe it will not be shut down, even if it is unprofitable.

All other things being equal, this means more price pain than previously expected.

It is understood BHP believes that as the price falls, marginal cost production will move from China to Brazil and Australia, and the more expensive majors, not just the high-cost smaller players, will be the marginal ­players.

UBS estimates Fortescue has a break-even cost of $US70 a tonne, landed in China, while Vale has a break-even cost of $US67.

BHP and Rio are $US47 and $US43 respectively, illustrating their bigger price fall cushions.

Lower costs may even benefit BHP and Rio in the long run, by keeping out new higher-cost production which, once it is built, will run at anything above break-even prices.

UBS said outside the majors, new projects would require prices of between $US90 and $US100 to go into construction, but once they were up and running they would still make cash and stay open at prices of $US60-$US90.

Mr Wilson’s Rio counterpart, Andrew Harding, emphasised this point earlier this month when he said if Rio did not continue expanding, there were 32 projects around the world that would go ahead instead.

“Major miners may want prices below $US90 a tonne,” UBS said.

“An iron ore price in the $US80-$US90 a tonne range may mean greater longer-term returns than one above that brings over­capacity to the market.”

Mr Wilson said he was confident the rules and royalties under which BHP operated in WA would not change, despite recent comments from Premier Colin Barnett saying BHP and Rio should remember who their landlord was and should hold back on their expansions, which were pushing down the price.

“I believe that the government’s very responsible,” he said.

“We have deployed a huge amount of capital, as have other organisations, over an extended period of time, against a fixed set of rules. It is unlikely that those rules change in the foreseeable future.”

Mr Wilson would not say how long he thought the iron ore market would be in oversupply.

But JPMorgan analysts recently reported, after a tour of the operations, that BHP predicted the oversupply would last “through 2016”.

Mr Wilson said BHP would not curtail its growth and would continue to squeeze as much low-cost iron ore on to the market as it could.

“We are going to leverage our installed capacity to its maximum,” he said.

“We’re going to go as hard as we can on driving as much volume through our installed capacity as we physically can.”
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#4
BHP expansion faces squeeze at port

Iron ore Tess Ingram
790 words
18 Oct 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

BHP Billiton's ambitious plans to boost production to 290 million tonnes may reach a snag at Port Hedland.

The miner is allocated only 240 million tonnes of channel capacity but plans to ship the additional 50 million tonnes through the use of opportunistic unallocated port capacity, something that may prove problematic as the port becomes busier.

BHP plans to add 65 million tonnes of capacity at its West Australian iron ore operations at a cost of about $2 billion, taking total system capacity from 225 million tonnes a year to 290 million by the end of the 2017 financial year.

Under the operating rules at Port Hedland port, users have an allocated export capacity under "A and B classes" but can also apply for extra "D class" shipping rights which are offered once their allocated capacity has been reached but further capacity remains within the rest of the port.

BHP has rights to 240 million tonnes of allocated capacity at Port Hedland but believes it will have no problems exporting 290 million tonnes through the use of D-class opportunities. According to the Pilbara Ports Authority, the total export capacity of the port is 495 million tonnes. It reached a record of 370 million tonnes in 2013-14.

But with new developments such as Gina Rinehart's Hancock Prospecting set to start utilising port capacity, current limits are likely to be put under serious pressure.

BHP general manager of port Michael Bailey said the company already uses D-class capacity while striving for the 245 million tonne target set for the 2015 financial year, but there are "no punts being taken" on the company's ability to reach its 290 million tonne goal. "From a capacity point of view, D class only becomes material once the whole harbour starts to get towards its upper limit, which I think we haven't got close to that yet," he said. "And until the whole harbour is at its capacity, D class is really just a way of prioritising the queue, if you like.

"We know we've got our 240 million tonnes of assigned capacity between A and B class and we're working, as I mentioned, to improve the efficiency of this operation and naturally in terms of scheduling our vessels in and out to build beyond that."

Mr Bailey said as various operators improve their efficiencies and work with the Pilbara Port Authority, the total capacity of the port may increase.Reasons for quiet confidence

One of the reasons the company may be remaining so quietly confident despite the allocation shortfall is that it believes the 495 million tonne capacity the PPA has set is conservative; Fortescue Metals Group chief executive Nev Power believes it to be closer to 650 million tonnes. The authority is completing a study on the port's true capacity which is set to be released next year.

It may also be that BHP and Fortescue, which is also seeking more capacity at the port, would gain from another 50 million tonnes of available capacity if North West Infrastructure's berth development fell over. NWI, a venture by Atlas Iron and Brockman Mining, was reserved 50 million tonnes of channel capacity by the WA government in 2009 but is yet to develop a berth.

Regardless of what else goes on at the port, the key to BHP optimising its channel allocation and making the most of available D-class capacity is through maximising the availability, utilisation and rate of its eight berths. Aside from efficiencies created from bringing ships in and out of the berths smoothly, it is undertaking a number of "discreet bottlenecking" projects off the water.

One of the projects BHP is working on is directly loading ore from its dumper cars straight into a shiploader, as opposed to through a stockpile.

Along its eight berths BHP plans to direct load every second ship, with the remaining four ships loaded through the stockpile. But getting the right ships into the right berths for the right kind of ore at the right time is no easy feat.

"We've got, we think, a real advantage there in trying to do more and more direct to ship," BHP general manager of rail Matthew Dowd said. "We get faster rates through the port so it actually enhances the overall capacity of the port."

BHP is direct loading about 40 per cent of its ore but analysts predict this may shift closer to 60 per cent, further streamlining the supply chain and if Mr Bailey is right, improving efficiency to capture more D-class capacity.

The writer travelled as a guest of BHP Billiton


Fairfax Media Management Pty Limited

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#5
BHP won’t rush to follow Rio to automate as its manned trucks beat robots
THE AUSTRALIAN OCTOBER 20, 2014 12:00AM

Matt Chambers

Resources Reporter
Melbourne
BHP’s manned trucks outperform fleet
Autonomous trucks on trial at BHP’s Jimblebar mine. Source: Supplied
BHP Billiton’s mining truck drivers are outpacing their robotic counterparts when it comes to efficiency and loading at West Australian iron ore mines, indicating the miner is a long way from any decision to follow rival Rio Tinto in a large-scale driverless truck rollout.

For a little more than a year, BHP has been trialling Caterpillar autonomous trucks at its newest Pilbara region iron ore mine, Jimblebar.

The trial was recently extended to March and a decision to add three more trucks to the nine-truck fleet was taken.

But despite autonomous Caterpillar trucks making up a little over a third of the 25 trucks at the overperforming Jimblebar — the mine came on early, ramped up quicker than expected and will now produce more than flagged — they are only moving 16 per cent of the dirt and ore.

The fact annual truck hours in the manned fleet across BHP iron ore have grown from 4500 to more than 6000, a one-third improvement, is a big factor.

“We’ve seen a very material improvement in the manned truck productivity level,” BHP iron ore mines boss Eduard Haegel said at the company’s Perth office last week

“Every time the autonomous truck improves a little bit, the manned truck improves just as much, so, as it stands today, the manned truck team is out-­competing the autonomous fleet.”

BHP has been a slower mover on autonomous haulage than the more technology-embracing Rio.

Rio began its program in 2008 and now has a fleet of 53 Komatsu trucks working in the Pilbara. It plans to lift that number to 150, or nearly half its entire fleet, by the end of next year. One difference between the Caterpillar trucks (which Fortescue Metals Group is also trialling) and Rio’s Komatsu trucks is that there is more on-board intelligence in the Caterpillars. Jimblebar mine manager Tim Day said it was a matter of pushing on with the trials. “It is showing positive signs but there is still a way to go for autonomy,” he said. “It has some inefficiencies in some areas compared to manned (trucks) ... so we’re very deliberately trying to figure out how to make it smarter.”

One issue was that the autonomous trucks turned more slowly than trucks with drivers.

JPMorgan analyst Lyndon Fagan, who toured Jimblebar earlier this month, said the key problems appeared to be truck speed and that the safety systems on the trucks meant they were often “spooked”, meaning too many stoppages.

Autonomous drilling of holes for explosives was going better, Mr Haegel said. “We’re very happy with how that’s going.”
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#6
Strong lift for BHP’s iron ore, energy coal quarterly production
THE AUSTRALIAN OCTOBER 22, 2014 9:33AM

Matt Chambers

Resources Reporter
Melbourne
Mitchell Neems

Business Spectator Reporter
Melbourne
BHP Billiton has delivered a solid September quarter, beating expectations in oil and gas and its Queensland coking coal operations but revealing a $US361 million cost blowout at an expansion of the giant Escondida copper mine in Chile that it owns with Rio Tinto.

And to deal with the benefits of the death of the mining tax in its accounts, the company has flagged a $US698 million writedown of deferred tax assets.

The big miner delivered another strong quarter from its West Australian iron ore operations, where expansions are weighing on prices.

“Our relentless focus on productivity continues to yield strong results,” chief executive Andrew Mackenzie said.

“At Western Australia Iron Ore, we have completed our major supply chain investments and, for the first time in a decade, we have no major projects in execution. With our focus now on maximising the value of existing infrastructure, we plan to reduce costs and invest judiciously in very low capital cost debottlenecking initiatives,” he said.

Driven by increased US shale oil production, oil and gas output grew 4 per cent from the previous quarter to 67.4 million barrels of oil equivalent, beating Deutsche Bank expectations of a fall to 62 million.

At Queensland coking coal, where the Caval Ridge mine was recently bought on ahead of schedule and under budget, production increased 7 per cent to 12.77 million tonnes, beating Deutsche expectations of a fall to 11.5 million.

West Australian iron ore production rose 1 per cent from the previous quarter to 57.1 million tonnes. Including minority partner interests, production was 62.4 million tonnes, just missing Deutsche expectations of 62.9 million.

BHP said an increase in its share of the budget of Escondida Organic Growth Project 1 to $US4.2 billion was approved during the period.

The increase “reflected challenges associated with contractor progress which have now been

addressed”, BHP said.

Also at Escondida, where BHP said previous production guidance remained, increased throughput means water restrictions are anticipated this quarter, which could result in the partial deferral of production to the March 2015 quarter.

BHP said it had been keeping a Minerals Resource Rent Tax deferred tax asset of $US698m on its books. With the demise of the tax, an income tax charge of about this amount was expected to be recognised in its full-year accounts.

BHP said a $US750 million exploration program, largely focused on the Gulf of Mexico, Western Australia and Trinidad and Tobago was planned for the 2015 financial year.

Production of energy coal fell 9 per cent to 17.83 million tonnes, while metallurgical coal increased 25 per cent to a record 12.77 million tonnes.

Metallurgical coal is still forecast to increase by 4 per cent in fiscal 2015 to 47 million tonnes.

Total petroleum production was 67.4 million barrels of oil equivalent (mmboe), a 7 per cent lift on the previous corresponding period.

Full-year guidance for petroleum remains unchanged at 255mmboe.

Copper output was 389,400 tonnes, a 3 per cent slide on the previous corresponding quarter.

Energy coal fell 9 per cent to 17.8 million tonnes.

Mr Mackenzie said the miner remained on track to generate group production growth of 16 per cent over the two years to the end of the 2015 financial year.

Production of energy coal, alumina and aluminium also dropped compared with a year ago and the previous quarter. Manganese ores and alloys were up on a year ago, while ores were steady but alloys were down on the previous quarter.

Nickel production was down 12 per cent on a year ago but up 16 per cent compared with the June quarter.

With AAP
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#7
No joy for BHP investors at company AGM

THE AUSTRALIAN OCTOBER 24, 2014 12:00AM

Barry FitzGerald

Resources Editor
Melbourne
BHP barrels along

Andrew Mackenzie says everything BHP is doing ‘is aimed at increasing cash returns’ to shAndrew Mackenzie says everything BHP is doing ‘is aimed at increasing cash returns’ to shareholders. Source: News Corp Australia
BHP barrels alongAndrew Mackenzie says everything BHP is ...
BHP Billiton has dashed investor hopes for more certainty around the timing of increased shareholder returns — but it has offered some cheer on the economic front, tipping that growth in China would hold above 7 per cent.

Speaking at the British leg of BHP’s (BHP) annual meeting season, chief executive Andrew Mackenzie last night talked up the fact that the company had returned $US64 billion to shareholders in dividends and buybacks in the past 10 years.

“Everything we are doing, including productivity accelerated by the demerger (of Newco), is aimed at increasing cash returns to you, our shareholders,’’ Mr Mackenzie said.

But he did not give any guidance to just when a step-up in cash returns would occur, saying only that when it did occur, it would be in a consistent, predictable and ­efficient manner.

His comments echo those made on August 19 at the release of BHP’s June year profit report. Disappointment that a share buyback or a major step-up in dividends was not announced with the result, and continued commodity price weakness have been key factors in BHP’s 15 per cent share slide since — a $US32bn ($36.4bn) value hit.


BHP chairman Jac Nasser, meanwhile, made a strong sales pitch regarding the company’s proposed demerger, telling the shareholders in London that it would be “another step in our evolution”.

The mining giant revealed in August it’s spinning off its aluminium, coal, manganese, nickel and silver assets into a new company.

Mr Nasser said the proposed demerger would see benefits for both companies and all shareholders.

“For BHP Billiton we can reduce costs and improve the productivity of our largest businesses more quickly,” the chairman said.

“This means we should generate stronger growth in free cash flow and a superior return on investment.

“The new company will benefit from its own strategy and own systems and processes specifically tailored for a business of its scale.

“This, along with greater focus on the new company, should see its assets perform even more strongly.”

The chairman said the split was “another step in our evolution and demonstrates our willingness and ability to continually reshape our business”.

He said BHP’s strategy would remain unchanged.

Mr Nasser acknowledged David Crawford who is retiring from the board next month to become chairman of the new company once the demerger is approved.

“We know there is no better person to guide the new company through its early years,” Mr Nasser told shareholders.

Mr Nasser also told shareholders that events this year, including in recent weeks, had served as a reminder of how “unpredictable and volatile geo­politics and economics can be’’.

“Despite this, growth in emerging countries remains solid at around 4.5 per cent and some developed economies have bounced back,’’ Mr Nasser said.

Importantly for commodity markets, Mr Nasser said that while the property sector in China was slowing, other sectors were showing resilience.

“Coupled with the ability to draw upon a range of other supportive measures, growth is still expected to come in above 7 per cent,” Mr Nasser said.

Ahead of the meeting, BHP shares fell 63c, or 1.84 per cent, to $33.64 on the ASX.

BHP is now down $6.04, or 15 per cent, on its August 19 level of $39.68.

At the time, Mr Mackenzie said that with net debt still above the desired level of $US25bn, and with iron ore prices in sharp retreat, BHP was “not quite ready’’. He said BHP wanted to start any capital management from a “position if strength’’.

That way, he said, the company would be able to implement an “enduring program that could be done in a more consistent and predictable manner’’.

Mr Mackenzie told last night’s meeting that shareholders should expect BHP’s productivity under his leadership to continue. “I am very happy to be predictable,” he said.

“We have already made significant cost savings and we will continue to drive costs down even further, targeting another $US3.5bn in annualised productivity gains by the end of the 2017 financial year. We reduced our capital expenditure by a third in financial-year 2014. We will reduce it again this year and we will only invest where we see a solid return.

“We will generate strong cashflow and, as a consequence, deliver good returns for you, our shareholders.’’

BHP’s June year profit was 23 per cent higher at $US13.83bn on which there was a 4 per cent increase in annual dividend to $US1.21. Earlier this week it released its production report for the first (September) quarter of its 2015 financial year.

Record production in eight operations and four commodities, plus outperformance in oil and coking coal, was not enough to change market expectations that in the face of the broad decline in commodity prices, profit this year is under the pump.

Market consensus is for a 7 per cent fall in profit to $US12.8bn, with production increases and cost-cutting not expected to be enough to offset falls in commodity prices from last (financial) year’s averages.

With AAP
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#8
BHP Billiton plans to sell Arkansas gas ground it bought for $4.7bn
THE AUSTRALIAN OCTOBER 27, 2014 5:35PM

Matt Chambers

Resources Reporter
Melbourne
BHP Billiton says it will try to sell US onshore gas ground in Arkansas where it made its first, $US4.7 billion foray into shale petroleum, before it later bought Texas ground, where its shale oil efforts are now focused.

BHP chief Andrew Mackenzie said the Fayetteville assets it purchased from Chesapeake Energy in 2011, on the basis US gas prices would rise to $US6 per million British thermal units, would be put on the block.

“As we look to improve the balance of liquids and gas across our Petroleum portfolio we have initiated the marketing our Fayetteville acreage,” Mr Mackenzie said before an investor presentation due in later in London tonight.

“We will only divest the field if it maximises value for shareholders.”

That value is unlikely to be anywhere near $US4.7bn.

BHP was forced to wipe $US2.8bn off the value of Fayetteville in 2012 as gas prices slumped below $US3 and showed no signs of recovering to levels where BHP could make a decent return on its investment.

The $US15bn acquisition of PetroHawk Energy later that year provided BHP with the EagleFord and Permian shale ground in Texas where it is spending $US4bn a year and looking to produce 200,000 barrels per day of shale liquids by 2016-17.
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#9
BHP reveals new cost-cutting details
DOW JONES NEWSWIRES WITH A STAFF REPORTER OCTOBER 27, 2014 9:30PM

Mining titan BHP Billiton Ltd on Monday unveiled further details about how it plans to meet its cost-reduction and productivity improvement targets.

The Anglo-Australian miner, the world's largest by market capitalisation, is in the process of spinning off part of its business, leaving it with a higher quality core of 19 assets. This core portfolio of assets is expected to grow output by 23 per cent in copper equivalent terms over the next two years to the end of the financial year ending June 30, 2015.

This compares with the company's previous guidance that it would grow output by 16 per cent over the same period, including output from the assets that will now be spun off.

"As our capital efficiency improves we will be able to create more value for less investment. We believe we can significantly reduce annual capital expenditure relative to our current plans while maintaining our growth trajectory," BHP chief executive Andrew MacKenzie said in a statement related to the company's investor day briefing.

BHP expects a minimum $US3.5 billion in annualised productivity gains by the end of the 2017 financial year with more than $US2.3 billion to come from cash cost savings. This should help the company generate an ungeared, post tax, nominal rate of return of over 20 per cent based only on its core portfolio of assets, Mr Mackenzie said.

At its Western Australian iron ore business, BHP expects to deliver a further 25 per cent reduction in unit costs in the medium term. At its majority-owned Escondida mine in Chile, BHP plans to reduce unit costs by another 5 per cent in the 2015 financial year. And at its US onshore petroleum operations, unit costs are expected to decline by 10 per cent in the 2015 financial year. The company also plans to reduce its Queensland coal unit costs in Australia by 10 per cent to below $US90/ton in the 2015 financial year.

Mr Mackenzie also said the company is planning to divest its Fayetteville acreage as it has decided to fully concentrate on the development of its high quality Haynseville gas field. He said, however,"we will only divest the field if it maximises value for shareholders."
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#10
BHP looks to call time on shale buy
DANIEL PALMER OCTOBER 28, 2014 7:00AM

BHP Billiton has called time on its ill-fated $US4.75 billion ($5.39bn) purchase of Chesapeake Energy’s Fayetteville Shale assets, declaring plans to sell the operations amid a cost-cutting push.

BHP acquired the Fayetteville acreage in 2011 but was forced to write down the value of the Arkansas-based assets by $US2.84bn last year as gas prices fell well short of expectations.

A line could soon be ruled over the expensive takeover as BHP chief executive Andrew Mackenzie pursues an auction of the assets, but the miner has warned it will retain Fayetteville should no enticing offers come forward.

“As we look to improve the balance of liquids and gas across our petroleum portfolio we have initiated the marketing our Fayetteville acreage,” he said in London overnight.

“However, we will only divest the field if it maximises value for shareholders.”

Mr Mackenzie added that part of the reason for the auction was that the chances of the firm pushing through with development in the near-term were "very low to non-existent".

Fayetteville joins the miner's list of potential divestments, with the sale of the Nickel West operation in Western Australia the miner's most high-profile auction currently underway.

The plan to offload Fayetteville overshadowed other details emerging from an investor briefing in London, with the miner detailing the rationale behind its intention to simplify its portfolio, headlined by its planned $15bn spinoff of non-core assets next year.

“We are confident that our productivity drive will be accelerated by the demerger proposal we announced in August,” Mr Mackenzie said.

“A simpler portfolio, focused on our 19 core one assets, will retain an optimal level of diversification while generating even stronger growth and margins.”

The mining behemoth said production from its core portfolio would expand 23 per cent in the next two years, with its fiscal 2015 production guidance retained.

Meanwhile, production cost reductions in iron ore, coal and copper, in particular, are tipped by the firm to lead to $US3.5bn in productivity gains per annum from the end of fiscal 2017.

“As our capital efficiency improves we will be able to create more value for less investment,” Mr Mackenzie said.

“We believe we can significantly reduce annual capital expenditure relative to our current plans while maintaining our growth trajectory.”
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