Monday 28th May, 2018

BHP’s Mackenzie vows to give shareholders slice of new cash flow

Iron ore train - credit BHP Billiton
Credit: BHP Billiton

A 15% reduction in unit costs and the development of several high-return capacity projects over the past two years has put BHP Billiton in a great position to pass more of its free cash flow on to shareholders, chief executive Andrew Mackenzie has said.

Mackenzie, who has been under fire from activist investor Elliott Management, told a metals and mining conference in Florida on May 15 that continued success in the company’s “roadmap to grow long-term shareholder value” had underpinned a significant increase in BHP’s return on capital.

Stronger commodity prices have helped with the company’s improvements too, Mackenzie acknowledged.

The chief executive pointed to a 15% cut in BHP’s unit costs, an accelerated technology and innovation program, and the progression of five high-return latent capacity projects had improved the company’s outlook over the last 24 months.

The sanctioning of two major projects in copper and oil, and discoveries at four petroleum exploration sites, were also highlights, he said.

“Alongside this, we have reduced net debt by over US$10 billion, returned US$8 billion to shareholders and, crucially, replenished our pipeline with new opportunities,” Mackenzie told the conference.

“This pipeline has the potential to add a further 40% to the value of BHP, subject to our strict capital allocation process.”

The next step for BHP, according to Mackenzie, will be realising a further US$2 billion in productivity gains by the end of FY19, and continuing to leverage BHP’s scale and simplicity to capitalise on new technology.

“BHP is set-up for future success. We have a simple, unique portfolio of the very best assets, diversified across attractive commodities,” he said.

“Our relentless pursuit of productivity, aided by a more agile and connected culture, will make sure we realise the full potential of our assets and capitalise on strong prices. On top of this, we have built an attractive suite of opportunities to drive further improvement. But, as always, we will remain disciplined in the allocation of capital with all investments weighed against cash returns to shareholders.

“Our path is deliberate, and we remain firm in our resolve to increase value and returns.”