BHP chief financial officer Peter Beaven has called for improved investment strategies in the mining industry to help aid medium- and long-term growth for companies.
The CFO addressed investors at an analysis briefing in Melbourne yesterday, where he discussed BHP’s capital allocation framework and elaborated on his beliefs regarding the current state of mining investment, which included some critical commentary on the industry’s trend towards a cautious approach.
Beaven suggested that mining could work to increase value with a return to countercylical investment trends (i.e. increased investment during down periods) as opposed to the current industry trend towards procyclical investment.
“Our industry is volatile and asset prices follow this volatility, so while this can be a major value risk, this volatility also creates value opportunities,” he said.
“So we must invest in the right commodities and the right assets, but critically at the right time; countercyclical investing is when value creation is maximised.”
Beaven also suggested that while long-term capital allocation was the “key driver and differentiator” of company performance in mining industry, the industry’s performance in the short- and medium-term was perhaps too reactive to market conditions.
He then said that while this approach had created “healthy discipline”, it was not always beneficial to shareholders and had contributed to diminishing the industry’s “licence to invest”.
“Typically we’ve seen management teams invest more capital at the top of the cycle chasing growth and less at the bottom as the focus shifts to debt reduction,” Beaven said.
“Sometimes this has been driven by misreading the cycle, investor pressure — which we all know can also be procyclical — or over exuberance.”
Beaven also said the industry should not confuse no investment with good investment.