Following the demerger of South32, the new-look BHP has just 19 assets – only 12 of which it operates – down from 41 previously.
Mackenzie said the company had already delivered $US10 billion ($A12.7 billion) in productivity gains over the past few years and was well-positioned to create further value following the demerger.
“We can believe we can go even further with a simpler portfolio and improve margins by reducing costs more deeply than the competition,” he said ahead of the Bank of America Merrill Lynch 2015 Global Metals, Mining & Steel Conference in Barcelona overnight.
“The potential benefits are substantial.”
BHP expects to cut unit costs by 21% in the 2016 financial year to just $16 per tonne.
Rio Tinto wowed the market earlier this year when it revealed its iron ore cash costs had dropped to just $17/t, but the company is expected to have realised further cost benefits since then.
UBS said the $16/t C1 cost suggested an all-in cash breakeven cost of less than $30 per dry metric tonne CFR.
Queensland coal unit costs are expected to fall slightly to $67/t.
“With spot met coal at around $82/t, this implies a cash margin of roughly $8/t, barely sufficient to cover sustaining capex,” UBS said.
“If coal prices remain weak, we watch for more closures with BHP's underground mine at the Gregory JV closing early.”
BHP’s unit costs at the Escondida copper mine are expected to drop by 16% on a grade-adjusted basis to $1.10 per pound, and it has flagged a 20% reduction in drilling costs per well in the Black Hawk to average $2.9 million.
Capital and exploration expenditure is forecast to drop to just $9 billion in FY16, from $12.6 billion, reflecting ongoing productivity improvements, as well as the deferral of some shale development and the Inner Harbour debottlenecking project in the Pilbara.
“We will continue to invest in our high quality projects to create long-term value and support dividend growth,” Mackenzie said.
In line with comments made to reporters in Perth last week, Mackenzie said there were no major investments expected in the oversupplied iron ore or coal markets at this time.
“Instead, our capital will be focused on the commodities we believe will have attractive supply fundamentals,” he said.
“We believe grade decline in copper and field decline in oil will constrain industry production and support a recovery in prices over the medium-term.
“The potash industry has largely exhausted brownfield expansion options and new greenfield supply will be required.”
He pointed to Spence, Olympic Dam and Escondida as the company’s copper growth projects, along with Jansen in potash.
Mackenzie said all investments would need to meet an average rate of return of more than 20% – including any buy-backs.
“Our portfolio of low-cost assets is unrivalled in scale and quality and we have the sector’s strongest balance sheet,” he said.
“Together, these give us resilience and flexibility in volatile markets.
“As we improve our productivity and invest in high-return projects through commodity cycles, we expect to offer our shareholders superior returns.”
BHP shares closed 2.2% higher at $A32.53 yesterday.
