In a letter to shareholders, BHP chairman Don Argus said the company’s portfolio of long-life, low-cost tier one assets, a healthy balance sheet and robust cash flows had placed BHP in a strong position.
“As to the future, I want to be very clear that BHP Billiton, as a standalone company, is in a strong financial and operating position,” Argus said.
“We believe we are better placed than our competitors in these challenging times to respond to the fluctuating demand for our products.
“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.”
However, Argus conceded he did not expect BHP to avoid the current slump in commodity demand.
“There is no doubt that these are challenging times for all of us,” he said.
“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.”
Argus also said that BHP would inform shareholders if production cuts were required.
“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 and advise shareholders and the market,” he said.
Argus added that the company’s priorities for cash flows remain to invest in core businesses, manage its balance sheet to a single A credit rating, maintain its dividend policy and return any surplus cash to shareholders.
In terms of developing its projects, the company will focus on lower-risk brownfield expansions in areas BHP knows rather than start up projects in new geographies.
“Our recent announcement of an investment of $US4.8 billion in Western Australian Iron Ore to increase our tonnes to 205 million per annum by 2011 is evidence of this confidence in the future and our ongoing investment in brownfield sites in known geographies,” Argus said.
The company had net debt of $US6.3 billion at October 31.
The news comes after rival mining giant Rio Tinto shocked the global market with its announcement that it would slash 14,000 jobs – comprising 8500 contractors and 5500 employees – worldwide to reduce its spending by $US5 billion and its debt by $10 billion.
Shares in BHP have dropped 17c to $30.78 in morning trade.