BHP Billiton Ltd. plans to take the crown of rival Rio Tinto Group as the lowest-cost iron ore supplier as an escalating battle for market share erodes profitability from one of the mining industry’s biggest sources of earnings.
The world’s largest mining company seeks to cut costs by 21 percent at its Western Australian operations to $16 a metric ton in fiscal 2016, Chief Executive Officer Andrew Mackenzie said Tuesday in an e-mailed statement. Rio Tinto is mining the steel-making raw material for $17, its CEO, Sam Walsh, said in April.
Prices have collapsed 53 percent since the start of 2014 as the largest suppliers try to squeeze out higher-cost competitors and deepen a worldwide glut of the material. The strategy has brought criticism from rival producers, as well as governments that see their natural resources being sold off cheaply.
Glencore Plc’s billionaire chief Ivan Glasenberg said on Tuesday oversupplying markets regardless of demand is “damaging the credibility of the industry.” The strategy is flawed and miners should stop boosting supply, according to Colin Barnett, premier of the Australian state that’s home to their mines.
“There is a lot of new low-cost supply that’s coming onstream and that’s happening at a greater rate than any extrapolated growth in demand for iron,” Mackenzie said, adding that it’s the reason he’s “relatively bearish” on prices.
BHP will cut costs “more deeply than the competition,” he said, from the company’s Queensland coal mines to the Escondida copper operation in Chile and at its U.S. Black Hawk shale fields.
The Melbourne-based producer of coal, iron ore, copper, oil and gas outlined new targets in a presentation at a conference in Barcelona hosted by Bank of America Merrill Lynch. Total capital spending will fall to $9 billion in fiscal 2016, from $12.6 billion in the year ending June 30, BHP said.
Walsh also set out the case for Rio in Barcelona. Its low mining costs give it an “unrivaled position in the industry but we cannot be complacent,” he told the conference. “Our focus on reducing costs in this business has never been sharper.”