BHP Billiton share price falls despite Australian expansion plan

BHP Billiton says it can cut costs at its iron ore mines in Australia, providing attractive returns for shareholders despite pessimism pervading the iron ore industry as a whole.

 

This failed to impress investors, however, with shares in the company going down by 0.2 per cent to £16.48 in trading this morning.

 

The mining company – one of the world's largest – has had a tough year so far. An increase in seaborne supply has caused the price of iron to drop to less than $80 a tonne, which is its lowest price since 2009.

 

This has bred negative sentiment among investors, who are questioning whether it is sensible for large mining companies to go through with plans to increase production. 

 

BHP Billiton plans to grow exports from the 225 million tonnes per year seen in 2014 to 290 million tonnes by 2017, and an expansion of its iron ore mines in the Pilbara region of Western Australia will help it achieve this ambition. 

 

The company believes it can cut production costs at its iron ore mines in the region by over 25 per cent, which would help it become the world's lowest cost producer of iron ore. Currently Rio Tinto holds that title. 

 

Its aim is to produce iron ore, before the cost of shipping and government royalties, for less than $20 per tonne.

 

"We aim to be the lowest cost supplier to China on an all-in cash basis," the company said in a statement this morning.

 

"The economics of further increasing our production are compelling."