BHP and Rio expected to slash combined $10bn off costs

The era of conservative mining majors is well and truly upon us.

Both BHP Billiton and Rio Tinto have inferred they plan to cut as much as $US10 billion from operating costs over the next two years.

The cost cutting measures come as the miners attempt to deal with stabilising commodity prices, and increased investor demand for larger returns, and it is the suppliers, contractors and employees that are expected to feel the squeeze.

What is particularly interesting is how different the two miners’ approaches to achieving these said cost cuts are.

Former Rio CEO Tom Albanese last year flagged his intentions to strip “at least” $US5 billion from operating and support costs by the end of 2014, The Australian reported.

It is expected Albanese’s replacement, Australian Sam Walsh, will continue with this agenda when Rio reports its 2012 calendar year results on February 14, Valentines Day.

Walsh has moved up the ranks from his former position as head of Rio’s iron ore business, and according to The Australian, will be under pressure to be more specific on the company's cost-cutting plans.

BHP has not been as clear as Rio, with chief executive Marius Kloppers in June last year said that the viability of high-cost operations was being assessed.

Kloppers at the time added that additional measures were being implemented in order to substantially reduce operating costs and non essential expenditure across the business.

Never-the-less JPMorgan analysts have speculated that BHP, like Rio is looking to cut as much as $5 billion over the next two years.

“Overall Rio appears to be targeting more aggressive cost cuts. However, the company didn’t disclose the original budget to measure performance. We expect BHP to be more conservative, potentially outlining savings achieved, rather than headline grabbing targets,” JPMorgan said in a research note yesterday.

The market expects BHP to drill down further on the specifics of its cost cutting ambitions at its December half profit report announcement scheduled for February 20.

Even though BHP has made no formal announcement regarding cost-cutting targets, JPMorgan said its likely cost saving target was $US4.6 billion over 2013-14.

It has been reported that BHP’s ongoing reluctance to go beyond an implied intention to cut costs is becoming an issue for investors.

To keep up to date with Australian Mining, subscribe to our free email newsletters delivered straight to your inbox. Click here.