BHP to focus on reducing capital expenditure further

The miner released a strong quarterly report, but it was the CEO's comments that were most pleasing

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Following an impressive production result for its September quarter of operations, BHP Billiton's (ASX: BHP) chief executive Andrew Mackenzie has promised to further scrutinise capital expenditure and costs, whilst also vowing to improve shareholder returns.

Major resources companies, including Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG), have been pushed by shareholders to increase their focus on cutting costs and increasing productivity, whilst also ramping up shareholder returns.

BHP's share price received a 2.3% boost yesterday following the report's release, as the company increased its full year guidance for iron ore production by 5 million tonnes to 212 million tonnes, reflecting a significant increase in productivity. This was aided by the first production from its Jimblebar mine, which arrived 6 months ahead of schedule.

In relation to costs and decreasing unnecessary capital spending, Mackenzie stated that the company is continuing to "build on the substantial $2.7 billion reduction in controllable cash costs delivered in the 2013 financial year, with strong momentum maintained in the first quarter."

Meanwhile, internal competition for capital continues to heighten, with the 25% reduction in capital and exploration expenditure in the 2014 financial year to US$16 billion. That rate will decline further again next year. Mackenzie said "If our investment criteria cannot be met in any one project, product or geography, we will redirect our capital elsewhere or we will not invest."

As the company continues to focus on reducing capital spending at the same time as increasing production, the company will be in a better position to increase shareholder returns.

The Australian Financial Review quoted UBS analyst Glyn Lawcock in describing it as a "cracking quarter" that showed the "BHP mantra of sweating the assets is clear, particularly evident by the success at Jimblebar."

Foolish Takeaway

BHP remains the most diversified Australian miner and, given the level of volatility still facing the sector, is therefore the most attractive option to add to your portfolio. As the company continues to increase productivity and becomes more selective with how they spend their capital, there could be gains to be made in the long-term. However, investors must still ask themselves whether it is worth exposing their portfolio to the risks associated with the mining sector.

If not, there are many other alternatives. For instance, you might be interested in our #1 dividend-paying stock. Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

More reading

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »