New Chiefs of BHP and Rio Tinto Vow to Rein in Costs

on May 15, 2013
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After reporting a fall in earnings earlier this year, two of the world’s largest mining companies, Melbourne-based BHP Billiton (ASX:BHP, LON:BLT) and London-based Rio Tinto (LON:RIO), have officially embarked on a new era of slashing costs and switching focus towards returns under their new chiefs.

Investors have been critical of a string of mining projects that have suffered multibillion-dollar write-downs as commodity prices fell and production costs rose. As a result BHP and Rio Tinto have turned to new chief executives who have promised stricter capital allocation and a greater focus on shareholder value. The new bosses of the top miners wooed investors on Tuesday, May 14, pledging to cut spending and press ahead with asset sales to raise cash and improve shareholders’ returns, but the promises failed to impress traders.

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**BHP Targets 18% Capital Spending Cut in 2014**
In one of his first public appearances, BHP’s new head Andrew Mackenzie has said that the company is targeting an 18 percent cut to capital spending in fiscal 2014 as part of a drive to boost returns from investment. Just days after officially taking over from Marius Kloppers as Chief Executive Officer at BHP, Mackenzie said at a Bank of America Merrill Lynch Metals, Mining and Steel Conference held in Barcelona on Tuesday, May 14: “We must challenge ourselves to increase returns from new investment, in the same way that we need to squeeze returns from our installed infrastructure.”

The newly-appointed CEO pledged that the BHP’s capital and exploration expenditure for the 2014 financial year would “decline significantly” to around $18 billion, including investment in the company’s onshore oil and gas business. The figure is down almost a fifth from BHP’s 2013 financial year and is expected to fall further to some $15 billion, “or less” as the company reduces the number of major projects that are approved, hoping to keep a lid on debt levels.

**Rio Tinto on Track to Cut $2 Billion Costs This Year**
Speaking at the same industry conference, Rio Tinto’s new Chief Executive Officer, Sam Walsh, echoed calls for lower spending, confirming $2 billion of cost cuts in 2013. Like BHP, Rio will seek to reduce its capital expenditure from $17 billion last year to around $13 billion.
Walsh, who took over in January from Tom Albanese, also promised “significant cash proceeds” from asset sales this year, as Rio, like its peers, focuses on core assets. He said: “We are looking at further disposals of potential non-core assets, in addition to those already announced.”

!m[Mining Majors Woo Investors with Pledges to Cut Spending but Stocks Decline](/uploads/story/2285/thumbs/pic1_inline.png)
**Stocks of BHP and Rio Drop Despite Promises to Slash Costs**
Despite the pledges by Mackenzie and Walsh to reduce costs, BHP and Rio saw their stocks decline on Tuesday. BHP’s share price closed 1.85 percent down in Sydney on the day of the mining conference. Rio Tinto lost 1.3 percent of its stock value.
In London, the Rio Tinto share price was 2,904.50p, down 2.19 percent, as of 13:51 GMT on Wednesday, May 15, while BHP’s share price was 0.52 percent down at 1,910.00p.

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