Mining giant focuses on cash

The prices of BHP's four main commodities - iron ore, coal, copper and oil - fell sharply. Photo / Bloomberg

BHP Billiton says it is not keen on boosting iron ore supplies in a weak market, signalling a change in its long-held position, as it shifts focus to maintaining financial discipline.

The mining giant, along with rivals Rio Tinto and Brazil's Vale, has pushed up production in recent years, despite falling prices, in an effort to corner the global iron ore market.
However, chief executive Andrew Mackenzie says the company's renewed emphasis on cash flows means it is no longer focused on volumes.

"High quality medium-to-longer term projects will only be pursued at a time when they add greater value than all other options, and do not exacerbate the current supply-demand imbalances," he said in a speech in Florida on Monday (Tuesday NZT).

The comments came as ratings agency Standard & Poor's affirmed BHP's 'A' rating, citing the miner's decision to slash its dividend and introduce a more flexible payout policy following its $US5.7 billion loss for 2015.

BHP shares reacted positively to the S&P action, and were 29 cents, or 1.9 per cent, higher at $15.86 at 1132 AEDT.

S&P had lowered BHP's credit rating in February and put it on negative watch to reflect sharply lower commodity price forecasts.

Mr Mackenzie said excess free cash flow will now be dedicated to value creation and shareholder returns, with strict adherence to BHP's capital allocation hierarchy.

BHP will first allocate maintenance capital before focusing on protecting its balance sheet, and then provide shareholder returns as per the new dividend policy.

"Finally, excess free cash flow will be used for additional returns to shareholders, organic and inorganic value creation projects, or used to strengthen our balance sheet," he said.

He also reiterated that BHP is close to reaching a settlement with Brazilian authorities over the Samarco dam disaster.

BHP is stil assessing the financial impact, but it is too early to say what the final cost may be.

In November, a massive spill of waste material in a dam collapse at the Samarco mine, which is co-owned by BHP and Vale, killed at least 17 people in what has been called the country's worst environmental disaster.

Brazil's federal attorney-general and public authorities in two states that were affected by the disaster, have asked the mining giants to set up a $US5 billion fund for clean-up costs and damages.

BHP has already outlined a $US1.12 billion provision against the Samarco business.

On Monday, ABC's Four Corners program said the mine's Fundao tailings dam was expanded despite a long history of problems.

Brazilian state police have alleged the disaster was partially caused by the mine ramping up production to offset the falling iron ore price.

Mr Mackenzie told the program he would wait for BHP's investigation to be completed, but Samarco responded, saying it had followed all the standards and conditions for operating the dam.