MARK COLVIN: BHP Billiton is planning to cut billions of dollars in running costs as the price of its key commodities slump. Iron ore has dropped to $US70 dollars a tonne, the lowest level in more than five years.
The big miner has told investors in Sydney that it will strip out another $4 billion a year from its operations as commodity prices come down.
And the head of BHP Billiton's coal business won't rule out more job cuts.
Resources reporter, Sue Lannin.
SUE LANNIN: BHP Billiton is the world's biggest miner, and as the once in a century mining boom fades, it told investors in Sydney that it will strip billions of dollars of year out of its mining operations.
BHP Billiton boss, Andrew Mackenzie.
ANDREW MACKENZIE: We delivered nearly $3 billion in productivity and gains in the 2014 financial year, and today have committed to a new minimum target of $4 billion of annualised efficiencies from our core portfolio by the end of the 2017 financial year.
SUE LANNIN: BHP Billiton will also trim nearly $2 billion from its investment plans by 2016, and it will keep selling off assets. BHP Billiton plans to spin off its less profitable assets like aluminium into a separate company.
That will leave iron ore, copper, coal, petroleum and potash in BHP Billiton. The problem is that iron ore, coal and oil prices have slumped this year.
But Andrew Mackenzie says the big miner will survive.
ANDREW MACKENZIE: Our credit rating is not at risk in the current environment. Following our results, both Moody's and Standard & Poors have reaffirmed our A-plus rating. And I've just got something here from S&P, they said while low annual prices would cause our credit metrics to be weaker in FY15, we have strong flexibility to mitigate further falls in prices. And I would echo that statement.
SUE LANNIN: Resources analyst Gavin Wendt says making money from a smaller stable of commodities is the biggest challenge facing BHP Billiton.
GAVIN WENDT: I mean at the present time BHP generates about 50 per cent of its income from iron ore. That's all well and good when prices are booming, of course it's not so great in the pricing environment that we're seeing now. I think one of the biggest issues facing the company is the fact that so much of its earnings are generated from a couple of key commodities.
SUE LANNIN: There's more cost cutting as well at the company's coal mines in Queensland and New South Wales, as the price of coal has dropped. BHP has already cut hundreds of jobs at its coal mines this year.
BHP Billiton coal boss, Dean Dalla Valle, says more layoffs are expected.
BEAN DALLA VALLE: Unfortunately it's part of our cost reduction program, we've had to let people go. We will continue to make adjustments in our business as we need to, we'll consult with people, we'll work with relevant people we need to, it's not our goal to run our and reduce more, but if we need to we will.
SUE LANNIN: Mr Dalla Valle defended the company's employment practices at two of its new coal mines in Queensland, where it only hires fly in-fly out workers.
BEAN DALLA VALLE: It allows us to really pick the cre of the crop, it's really about ensuring that we have diversity of our workforce.
SUE LANNIN: Steve Smyth from the Construction, Forestry, Mining and Engineering Union (CFMEU) in Queensland says the FIFO only rules aren't justified.
STEVE SMYTH: That's a complete and utter insult and discriminatory in nature, because at the end of the day their mines now that's operating now in the Bowen basin, whatever diversity they have, female operators they have local employment.
SUE LANNIN: He says more job cuts will see more workers from labour hire firms employed.
STEVE SMYTH: It just means that there will be an increase of what we think that type of employment taking away their full time opportunities.
MARK COLVIN: That story by Sue Lannin ended with Steve Smyth from the CFMEU.