UPDATE 3-BHP appoints new CEO as industry enters era of austerity

Tue Feb 19, 2013 9:25pm EST

* Incoming CEO Mackenzie has 22 years oil, gas experience

* H1 profit before one-offs drops 43 pct to $5.68 bln

* Takes $3 bln charge on alumina, nickel assets

* BHP sees iron ore, coal prices dampened by new supply

* Shares touch 17-month high

By Sonali Paul

MELBOURNE, Feb 20 (Reuters) - BHP Billiton Ltd appointed the head of its non-ferrous business as its CEO to replace Marius Kloppers, the fourth global miner this year to change its top brass as the industry enters a new era of austerity.

Miners are now focusing on squeezing the most out of their best assets after coming under pressure from investors for splashing out on expensive projects and acquisitions and allowing costs to spiral out of control in the boom years.

BHP's appointment of Andrew Mackenzie, 56, as its CEO is a sign that miners are turning to men with strong operational credentials to focus on capital discipline, rather than deal makers, as commodity prices wane. Rival Rio Tinto appointed former iron ore chief Sam Walsh as its CEO last month.

"The era where these big mining companies such as BHP go out and engage in these expensive corporate deals is over. Mackenzie and Walsh prove that," said Gavin Wendt, an analyst for MineLife in Australia. "They can no longer go out and spend and spend as their investors stand on the side and watch in bemusement."

Mackenzie, wooed by Kloppers from Rio Tinto in 2007, will move into the top job in May.

The appointment was announced as BHP reported a 43 percent slump in first-half profit to $5.68 billion, its worst profit drop in more than a decade, and took $3 billion in writedowns on its aluminium and nickel assets, in line with market forecasts.

BHP flagged last November it was looking for a new CEO, but Kloppers, 50, picked his own retirement date after nearly six years in the job and admitted retiring was a tough decision.

BHP's shares rose nearly 1 percent to a 17-month high of A$39.34 after Mackenzie's appointment before dipping in a slightly firmer overall market.

Analysts said Mackenzie's appointment was not comparable with the sacking of Rio Tinto chief executive Tom Albanese last month for misjudged deals in aluminium and coal.

CHANGE OF GUARD

Mackenzie, a prize-winning scientist who grew up in an industrial town near Glasgow, worked for oil and gas giant BP for 22 years before he entered the mining industry, giving him crucial experience in the key commodities BHP has targeted for growth as it aims to ease its reliance on iron ore.

"He's a rare executive because he has experience in both the oil and gas, petrochemicals and minerals area of this business. And that fits us perfectly," BHP Chairman Jac Nasser told reporters.

Investors and analysts hailed the appointment of Mackenzie, who headed the company's base metals and energy coal operations, saying the market would welcome his expertise in energy.

"The new CEO is coming from a very long career in oil and gas and minerals, especially oil and gas. And oil and gas is a growing proportion of BHP's business. So I think it will be well received by the market," said Mark Taylor, senior resources analyst at Morningstar.

Kloppers joins the fallen chiefs at Rio Tinto, Anglo American and Xstrata.

He won kudos for leading BHP through the global financial crisis in much better shape than its peers, but disappointed investors with his expensive bid for shale gas assets in the United States, which led to $2.8 billion in writedowns and cost him his bonus last year.

Nasser praised Kloppers for making the company stronger and safer, and his role in overhauling the global iron ore market to market-based pricing rather than annual contract talks.

"We actually returned more capital to our shareholders during this period than all of the rest of our peers combined," he said, pointing to $36 billion in gains to shareholders, including $24 billion in dividends.

BHP's shares have fallen 12 percent since Kloppers took over in October 2007, outperforming Rio Tinto's 18 percent decline over the same period, and a fall of 38 percent at Xstrata and 41 percent at Anglo American.

Kloppers also led the company in three failed takeover tilts at Rio Tinto, Rio Tinto's iron ore business and Potash Corp , three deals that fell apart largely as the company had underestimated the concerns of regulators.

COST PRESSURES

BHP said it expects global commodity prices to remain under pressure as new low-cost supplies come into production, even through demand is expected to improve over the next 12 months.

The key challenge for Mackenzie will be to manage the business in those tougher conditions.

"There's an enormous latent capacity within the company to improve margins and adjust the portfolio to the current world we live in," said Tim Schroeders, a portfolio manager at Pengana Capital, which owns BHP shares.

Net profit fell to $4.2 billion with the aluminium and nickel writedowns offset by gains from the sales of its Richards Bay minerals stake, its Browse gas stake, its diamonds business, and Yeelirie uranium deposit.

BHP raised its interim dividend by 3.6 percent to 57 cents, also in line with analysts' forecasts.

Rio last week surprised investors with a 15 percent rise in its dividend despite reporting its first ever loss, hit by $14.4 billion in writedowns on its aluminium business and Mozambican coal assets, which cost Albanese his job.

BHP last year shelved $40 billion in projects and shut some loss-making coal mines, as the whole industry battled with soaring costs, a strong Aussie dollar and sliding commodity prices.

In further moves to protect its margins, it said on Wednesday it had cut $944 million in costs over the past half year, but it did not outline a broader target for cost cuts.

That is in contrast with rival Rio Tinto, which plans to cut $5 billion in costs by the end of 2014.

Senior executives at BHP who were passed over for the top job include the head of ferrous Marcus Randolph, petroleum chief Mike Yeager and chief of aluminium, nickel and corporate development, Alberto Calderon.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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