Low iron ore price not our fault: BHP Billiton

Australian mining needs to be promoted as an attractive career.

BHP Billiton chief Andrew Mackenzie said calls to reduce iron ore production in the light of falling prices would only work to harm the Australian economy.

Mackenzie blasted recent suggestions that the company had employed a flawed strategy in its ramp up of iron ore production.

BHP has spent around $32 billion in the past ten years more than doubling its production out of the Pilbara.

By 2017 the miner’s annual iron ore output will increase to 275 million tonnes.

But with price of iron ore dropping by close to 50 per cent last year, the company has come under attack from West Australian Premier Colin Barnett over how it runs its business.

Last year Barnett slammed both BHP and Rio Tinto for plans to increase production.

"This seeming strategy of the two major producers to flood the market (with supply) and force the price down, I mean, remember who your landlord is – that's hurting Western Australia," Barnett said.

"I will just make the point, you can have your corporate strategy, but there's also a sense of corporate social responsibility."

Fortescue Metals Group CEO Nev Power also recently pointed the finger at BHP for flooding the market.

“As we know in the iron ore business there has been plenty of talk about what projects will come on but they have been delayed and not come on as forecast, but this apprehension of excess supply is influencing the price,” Power said.

But Mackenzie is unapologetic, stating supply from a reliable miner like BHP created strong economic growth.

“I strongly believe that the world will be best served by a sustainable supply of commodities at a fair price, and that capital ­resources should be directed ­towards the most efficient sources of that production in a manner that the world gets them as cheaply as possible, in terms of cost, and with the greatest environmental performance and the smallest environmental footprint,” Mackenzie told The Australian.

“The only certain effect of ­stalling production will be to ­reduce Australian exports.”

BHP has not invested in iron ore since 2012, but is working to sweat its assets in order to achieve higher production targets.

BHP said a ramp up to 270 Mtpa is expected to be achieved without the need for additional fixed plant investment.

Beyond that, the Inner Harbour Debottlenecking and Jimblebar Phase 2 projects have the potential to increase total capacity to 290 Mtpa by the end of the 2017 financial year at very low capital costs.

 “Any growth you see from us is pre­dominantly by completing investments and making the investments that we have made even more productive,’’ Mackenzie explained.

 “Anything less than that would mean giving up revenue, giving up royalties, giving up the stimulation to employment and innovation that are so important for this country’s future.”

BHP Billiton is set to release its half-year results tomorrow, and analysts say the drop in the price of iron ore could lead to a 35 per cent hole in the company’s profit.

Even so, Mackenzie said halting production would not lead to an increase in the price of iron ore, but would just let other competitors plug the supply gap.

“If there had been a pullback of production out of the major Australian producers, it’s very questionable as to whether that would have had any impact on the downward drift in the price,” he said.

“And that would have simply ceded production to other countries, who would’ve taken up that slack.”

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