BHP Billiton Limited (BHP), a premier minerals and industrial metals firm, has recently declared operating targets for the upcoming years. By fiscal 2017, the company aims to enhance its core portfolio productivity by $4 billion. Furthermore, it aims to achieve adequate business growth despite lowering the level of investments in future. The company has also forecasted results, which portray good future prospects in the market.
Operational and Productivity Target Highlights
BHP Billiton has revised its annual core portfolio productivity guidance by $500 million. According to the company, superior capital efficacy will help it in lowering planned investments to $14.2 billion by the end of fiscal 2015 and $13 billion by fiscal 2016, assuming negligible change in estimated productivity growth.
In the upcoming fiscal years, the company aims to lower its cash costs by $2.6 billion per annum. By effectively lowering its manufacturing costs, BHP Billiton has re-established its competitive advantage in coal procurement capability. Furthermore, adverse impacts of the grade decline in copper productivity will be offset by beneficial impacts from the less expensive de-bottlenecking projects of the company.
Copper Operations and Productivity
BHP Billiton has maintained a strong outlook for its copper productivity. Irrespective of challenges such as high strip ratios, grade decline, and low power and water availability, the company aims to meet its copper supply deficit by the end of fiscal 2018. BHP Billiton aims to augment its copper productivity over 2.0 Mtpa, on the back of the Spence and Olympic Dam projects. The Olympic Dam will possibly improve the company’s copper productivity by 50 KT at the end of fiscal 2018.
Coal Productivity and Costs
The company’s coal prices will likely be supported by growth in market demand for hard coking coals. By closing costly capacities, BHP Billiton intends to achieve competitive advantage in coal exploration. The company claims that economies of scale have helped to reduce its unit costs of metallurgical coal by 37% and energy coal by 21%.
By the end of 2015, the organization expects marginal costs of its Queensland Coal facility to decline by 10%. Furthermore, by 2016, it anticipates lowering its New South Wales Energy Coal’s unit cost by 15%.
Anticipation Insights
BHP Billiton aims to improve overall yield by simplifying its portfolio through the recent business demerger. In fiscal 2014, over 96% of the company’s operating profit was generated by its core assets. Henceforth, the organization aims to reduce costs without losing the benefits of economies of scale and diversity, experienced by its manufacturing facilities. Also, the company aims to generate higher returns for its stakeholders by lowering functional costs and reducing the practice of duplication within its trade.
With a market capitalization of $149.21 billion, BHP Billiton currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the industry include Dominion Diamond Corp. (DDC), Paladin Energy Ltd (PALAF) and Solitario Exploration & Royalty Corp. (XPL). Each of the stock holds a Zacks Rank #2 (Buy).
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