BHP Targets 18% Capital Spending Cut in 2014 to Boost Earns

BHP Billiton Ltd. (BHP), the world’s largest mining company, is targeting an 18 percent cut to capital spending in fiscal 2014 as part of a drive to boost returns from investment.

“We must challenge ourselves to increase returns from new investment, in the same way that we need to squeeze returns from our installed infrastructure,” Andrew Mackenzie, the new chief executive officer of Melbourne-based BHP, said today in notes for a speech at a conference in Barcelona. “Capital and exploration expenditure for the 2014 financial year will decline significantly, to approximately $18 billion.”

Mackenzie, 56, this month took over as CEO from Marius Kloppers, amid a changing of the guard at the world’s biggest mining companies as record commodity prices waned. Mackenzie said in February that he will drive an “agenda of productivity” before BHP unveiled $1.9 billion in cost savings when reporting a 58 percent decline in first-half earnings.

“The rate of spend is expected to decline substantially” after 2014, Mackenzie said. “By reducing our annual spend and increasing internal competition for capital, we expect to maximize returns from incremental investment, while delivering a substantial increase in the group’s free cash flow.”

BHP rose 0.4 percent to A$34.67 at the close of trading in Sydney. Rio Tinto Group was little changed.

The company estimates it will spend $22 billion on projects and exploration this fiscal year after a record $22.7 billion in fiscal 2012, according to Mackenzie’s presentation.

BHP in February joined Rio Tinto and Anglo American Plc (AAL) in reporting a drop in earnings. BHP and Rio are among companies selling assets to shore up earnings and cut costs after more than $60 billion of writedowns in the industry.

To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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