BHP sets targets for costs, earnings


BHP Billiton's chief Paul Anderson has outlined strategy for the next four years

Geoff Hiscock
CNN Asia Business Editor

SYDNEY, Australia (CNN) -- Resources giant BHP Billiton will aim to generate a 15 percent return on capital by 2006 after cutting costs by $500 million between 2003 and 2005.

The company said cutting costs by 2 percent a year is one of its key performance measures in a strategic review unveiled Monday.

The $500 million saving is in addition to a $270 million merger benefit it expects to achieve by June 2003.

Melbourne-based BHP completed a $28 billion merger with the London-based mining group Billiton in July last year.

In February it reported a record half-year net profit to December 2001 of $1.198 billion, in line with expectations.

Shares in BHP Billiton closed Monday 6 cents or half a percent higher at A$11.74, after going as high as A$11.89 earlier in the day. They have put on about 10 percent since the start of the year.

Performance measure

In a presentation by Chief Executive Paul Anderson and his designated successor Brian Gilbertson, the company said Monday that lifting its return on capital to above 15 percent by the 2006 financial year was a key performance measure.

It said the company has $10 billion of identified growth potential projects over a five-year period, with about $2.5 billion already committed since the merger.

This includes its latest big project announced last week, a $480 million expansion of its iron ore deposits in Western Australia and its Port Hedland port and rail facilities.

This includes developing a new mine at Mining Area C in the Pilbara region of Western Australia with capacity of 15 million tonnes of ore a year.

South Korean steelmaker POSCO is buying a 20 percent stake in Mining Area C from BHP Billiton and will take 3 million tonnes a year from this mine. BHP's stake will fall to 65 percent, with the other shareholders being Japanese-linked companies Mitsui Iron Ore (7 percent) and CI Minerals Australia (8 percent).

Generate cash flows

Gilbertson, who will replace Anderson as CEO by December this year, said Monday that BHP Billiton was placed to generate cash flows around a mean EBITDA (earnings before interest, tax, depreciation and amortization) of $5 billion a year.

Even in a bad year, EBITDA was unlikely to fall by more than $1 billion, he said.

Gilbertson said only one big issue remained among its asset portfolio -- its HBI (hot briquetted iron) plant in Western Australia, which has had an unhappy and expensive history.

The plant had struck a "fairly serious snag" which halted production recently, Gilbertson said.

He said he hoped an investigation into the causes would enable a "sensible decision" to be made soon. In May 2000, BHP wrote off Aust $1.138 billion (about $600 million) as the pre-tax carried value of the HBI plant.

Anderson said when he announced BHP Billiton's half year result on February 15 that the period to June this year would be difficult. But he also told CNN then that he was "fairly optimistic" about conditions in the first half of 2003.