BHP suppliers caught in $US4b savings squeeze
BHP Billiton is putting pressure on its suppliers to accept contract cuts of as much as 25 per cent as it seeks to shave $US4 billion ($4.6 billion) from its annual operating costs in the next two years.
Industry sources say BHP is asking suppliers across its Australian operations to make cuts of between 15 per cent and 25 per cent to existing contract values, or risk losing the global mining giant's business.
Unconfirmed rumours suggest it has also pushed companies to back-date those cuts to the start of the financial year, a suggestion BHP did not deny yesterday.
Other contractors have been offered a "cost-plus" contracting model, with the suggestion new contracts would build in a margin of only 2 per cent to 4 per cent above operating costs.
Chief executive Andrew Mackenzie lifted BHP's cost-cutting targets by $US500 million yesterday, up from $US3.5 billion, and slashed another $US600 million from its capital and exploration budget this financial year. Capital spending will fall to $US13 billion in the following period.
The company has made no secret of its desire to squeeze as much as possible from its contractors, but industry sources suggest BHP executives are now pushing the limits of the com- pany's market power.
BHP showed in July it was prepared to tear up existing contracts early in search of savings, cancelling a $US360 million Downer EDI contract for pre-stripping at the Goonyella Riverside coal mine.
BHP would not comment on details of its discussions with suppliers, but a spokeswoman said it was seeking to reduce its supply expenditure.
"We are actively focused on lowering contract rates for goods and services where appropriate, and while the details of these negotiations are commercial in confidence, these types of measures are prudent given the economic environment," she said.
Mr Mackenzie also reshuffled his executive deck yesterday, promoting aluminium and nickel boss Daniel Malchuk to head his copper division. Marketing president Mike Henry and coal chief Dean Dalla Vale will swap jobs, and BHP poached the Commonwealth Bank's Margaret Taylor to replace Jane McAloon as company secretary.
Mr Mackenzie also announced a raft of new appointments at NewCo, as the home for BHP's unwanted assets takes shape ahead of next year's listing.
BHP shares closed up $1.20 yesterday to $32.90.
