LONDON Aug 21 Mining firms are wooing investors with aggressive cuts after years of profligate spending, but BHP Billiton says the greater challenge will be improving productivity, if major producers are to ride an eventual recovery.
BHP, Rio Tinto and others big and small have promised shareholders they will slash billions of dollars of spending, shedding jobs, reining in wages and cutting back on fringe costs, such as staff travel.
Rio says it tells employees in its iron ore unit to use low-cost airlines or teleconferencing - a far cry from a time when chartering flights to remote mines were the norm and tales abounded of truck drivers on six-figure annual dollar salaries.
But that was the easy bit, the chief financial officer of BHP Billiton, the world's largest miner, told Reuters.
"When you talk about costs there are two elements. One is how you tighten your belt and make the easy changes," said Graham Kerr, a BHP veteran put in charge of finance last year.
"The second is productivity," he said in an interview. "Getting more out of your existing people, your equipment and your infrastructure. Productivity will deliver more benefits over time, but takes a little more time to be done."
BHP said this week alongside its report on annual earnings that it had cut $2.7 billion of "controllable" costs - new exploration projects, for example, but not fuel for existing operations. That figure amounts to a reduction of roughly 7 percent in spending per tonne of copper equivalent production.
The saving - $2.2 billion at the operating level - helped offset an $8.9-billion hit to operating profit caused by lower prices for BHP's products.
The bulk of the saving came from cutting back on exploration and development - $1.5 billion out of the $2.7 billion - a decision Kerr is confident carries little risk for the future.
BHP has already been pulling out of regions where mining has been developed only recently, including parts of west Africa, and it has been concentrating instead on its core deposits. Exploration is now focused on copper, with no spending planned on new, greenfield projects seeking other minerals.
"We don't need more iron ore, more energy coal, more nickel," Kerr said. "We have our resources in the right location and we understand them very well."
Analysts tend to agree the large miners have enough to work on and can afford to slow the search for new deposits, cutting one area - exploration - that does not affect current production and where, arguably, they can make up lost time later.
Since smaller firms are struggling to raise cash to develop new mines, the risks of losing out on a major find are also smaller now.
"The view taken now is no one else is exploring the gaps you are pulling out of," said one London-based industry adviser who spoke on condition of anonymity. "You are not necessarily missing out on the next big opportunity."
And the big miners have enough to work on for now. "Rio has enough in their larder anyway for the next 10 years, 20 years," said analyst Paul Gait at Sanford Bernstein in London.
Having cut costs, BHP's Kerr said, the challenge now is to get more out of existing assets - and this at a time when many miners are finding ore grades falling, particularly in copper.
BHP plans to spend over $16 billion in 2014 on growth, maintenance and exploration - below 2013 and less than initially planned but still a very large share of the $18.2 billion it generated in net operating cash flow in the year to June.
For some other miners, the drive for efficiency can mean organisational shifts - the simplification of Anglo American's divisional structure, for example. And for all, it has meant a focus on new technology - BHP's new chief executive has compared it to Formula One's search for constant improvement.
But for most now, it will mean improving what they get from their existing mines, to permit increased output that can offset lower prices - and make the most of any future surge in demand.
BHP, Kerr said, has improved its comparison of performance between sites and has, for example, made truck use at Goonyella, its Australian coking coal mine, 25 percent more efficient.
He also highlighted improvements at Escondida in Chile, the world's largest copper mine, which has increased volumes going through a concentrator - though BHP was also fortunate to strike higher-grade ores at the site during the financial year to June.
And in due course, BHP believes, world demand will improve.
"As some of our peers reduce capex, stop projects, stop growth, demand is going to continue to grow in China and we are well positioned to feed that demand," Kerr said.
"I see upside for us."