BHP’s productivity on the rise

Speaking on the first day of a two-day investor briefing which is focused on the company’s growing petroleum business, Andrew Mackenzie, CEO of global miner BHP Billiton (ASX: BHP), again highlighted the importance that productivity played in regards to the longevity of the business.

Mackenzie stated that BHP’s productivity agenda “has the potential to create more value than anything else we do”, whereby a combination of greater output and lower unit and cash costs would greatly improve the company’s returns from investment.

From this, the company will continue to build upon its 2013 US$2.7 billion reduction in controllable cash costs. Whilst investment in projects would again fall in 2014-15, BHP intends to cut its capital and exploration spending by 25% this financial year.

The miner has maintained its production guidance, forecasting growth of 16% in copper equivalent terms over the next two years, stating that petroleum would account for almost one-third of that production growth. Meanwhile, iron ore would contribute 37% towards that production growth in that time, coal would account for 19% and copper would contribute 10%. Other businesses would also account for 2%.

Australia not to be hurt by US gas boom

Whilst there have been fears that the United States’ supply of gas could compete with Australia’s export volumes by 2025, BHP has delivered a far less ambitious forecast, suggesting that North America will supply 11% of Asian demand by 2030 – which will still be less than half the amount that Australia exports to the region.

The miner is well-placed to partake in the debate regarding whether US supplies will harm Australia and has indicated that it is closely considering the potential for gas exports. This has been largely banned until recent years.

Foolish takeaway

Recent strength in the mining sector has many investors questioning whether it is worth buying these stocks at today’s prices. Of Australia’s largest miners, BHP is by far the most diversified, making it the most appealing investment prospect compared to others in the industry, including Rio Tinto (ASX: RIO) or Fortescue (ASX: FMG), which are much more heavily focused on iron ore.

However, there are still many risks facing the sector and investors must determine whether or not it is worth exposing their portfolios to this, or whether they should wait for a more attractive entry point.


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

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