BHP Billiton defends iron ore strategy in memo to employees

In the face of growing criticism from FMG’s founder and chairman Andrew Forrest, BHP Billiton iron ore president Jimmy Wilson has sent a note to staff defending the company’s strategy.

In the note, Wilson explained that in 2012 BHP cancelled a $US20 billion dollar investment which would have seen an extra 180 million tonnes per year enter the market.

"At the same time FMG chose to develop a new berth in the inner harbour to develop an additional 25 million tonnes per annum making FMG the world's most prolific iron ore growth story," Wilson said.

“In fact, the last time the BHP Billiton board approved major capital for iron ore was in March 2011 to deliver capacity in excess of 220 million tonnes a year.”

But BHP has found ways to optimise its existing infrastructure since then, upping its iron ore production guidance by 5 million tonnes this year to 250 million tonnes.

It had planned to produce 290 million tonnes by 2017, but recently announced it would slow it expansion plans down by deferring a port upgrade.

This year, FMG will increase its production by 5 million tonnes to between 160 million tonnes to 165 million tonnes but has revised plans to expand its production to 180 million tonnes per year.

Rio Tinto remains unmoved, and plans to produce 350 million tonnes in 2017, up from 330 million tonnes this year.

The price of iron ore has had a fast fall from grace, going from $US100 a tonne this time last year, to just $US57 a tonne this week after a period of recovery.

On April 2, the price hit a record low of $US46.70 tonne.

Over the last few weeks, Forrest has attacked the major miners, stating that the flood of new supply being produced is working to hurt the price of iron ore, warning it could affect Australian living standards.

Forrest continued his attack this week, telling the ABC’s The Business program he wants the miners to take responsibility.

“It’s a bit of a ‘one man against a couple of global giants’ (situation), but I’m after responsibility,” Forrest said.

“They have tried to drive the iron ore price down to drive everybody else out of business but in so doing they are jeopardising the entire Australian economy. They need to be held to account by the Australian people and reminded that they don’t own the iron ore.”

Forrest has previously called on the miners to limit production in the hope it will drive the iron ore price higher – a comment for which he came under intense criticism.

He said the fall in the iron ore price would cost the Australian economy tens of billions in lost revenue.

"That's like $50 to $60 billion each year you've pulled out of the Australian economy, and so no wonder we are now having our credit rating as a country questioned by leading authorities," he said.

"No wonder our deficits are looking bad, our surpluses are looking decades out, all because an iron ore price game started to be played with a British company who is not responsible for the interests of their host country."

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