BHP Billiton says it will focus on brown-field expansion projects including its Western Australian iron ore operations, to help carry it through the current economic uncertainty.
BHP Billiton says it will focus on brown-field expansion projects including its Western Australian iron ore operations, to help carry it through the current economic uncertainty.
In a letter to shareholders, BHP chairman Don Argus cited the miner's recent $US4.8 billion ($A6.82 billion) investment to boost WA iron ore output to 205 million tonnes by 2011 as an example of the direction it will be taking
"For now, in developing our projects, our emphasis is on lower risk brown-field expansions in areas we know, rather than start up projects in new geographies," Mr Argus said.
"Having said that, there is no doubt that these are challenging times for all of us.
"Uncertainty in the world's commodity markets remains particularly high in the short-term, and we do not expect to be immune from these changes.
"However, we have excellent customer relationships and so far we have been able to substantially maintain our sales volumes through a combination of our normal long term contract and spot business.
"If these uncertain conditions persist and significant production cuts become necessary, or any of our operations are cash negative and are set to remain so, we will respond accordingly ..."
Mr Argus said the miner's priorities for cash flow now were to invest in core businesses, manage its balance sheet to a solid single A credit rating, maintain our progressive dividend policy and return any surplus cash to shareholders.
Mr Argus also said the miner was ready to respond if production cuts become necessary of if "any of our operations are cash negative".
However he stressed that BHP has flexibility, through its balance sheet and its portfolio, to respond to changes in business conditions.
"I want to be very clear that BHP Billiton, as a standalone company, is in a strong financial and operating position," Mr Argus said.
"We believe we are better placed than our competitors in these challenging times to respond to the fluctuating demand for our products."
The letter follows BHP Billiton's decision in November to abandon its bid to take over fellow miner Rio Tinto.
Mr Argus said the decision to discontinue its bid for Rio had been "difficult ... but one we believe (was) right for BHP Billiton shareholders.
"As to the future, we have a portfolio of long-life, low-cost, expandable, tier one assets," he said.
"As a result of this portfolio, and low-cost position, BHP Billiton's margins are the highest among the industry and in these difficult times, we expect to outperform our peers."
BHP Billiton also had "a very strong balance sheet," with net debt of $US6.3 billion ($A8.95 billion) at October 31, 2008, against a market capitalisation of around $US115 billion ($A163.42 billion) as at December 18.
It had "robust cash flows to support investments through the commodity cycle".
"These two elements give us the flexibility in these volatile times to respond to any changes in business activity ... and we can continue to invest for future growth in shareholder value," he said.
