BHP sees no recovery in iron ore, fights to protect credit rating

BHP Billiton on Wednesday said it sees no recovery in key iron ore or coal prices, unlike copper and oil, as the company downgrades its full year iron ore production while fighting to maintain its investment grade credit rating.

BHP Billiton Limited, one of the world's largest diversified miners, has been under financial stress from the self-inflicted drop in commodities that have hit multi-year lows, with local analysts suggesting the long protected dividend will be cut.

Global miners have been ramping up production to reduce their cost-per-unit base, however their moves are only adding to the ongoing commodity supply glut that has seen higher cost producers exit the market.

"We continue to cut costs and remain focused on safely improving our operational performance to enhance the resilience of our business," BHP Billiton chief executive Andrew Mackenzie said in the company's December quarter and half-yearly production update.

However a sign the company may end its long held progressive dividend policy, Mackenzie said the company's balance sheet comes first to protect its investment grade credit rating.

"In this environment we are also committed to protecting our strong balance sheet so we have the financial flexibility to manage further volatility," Mackenzie said.

Mackenzie said by having financial flexibility, BHP would be able to "take advantage of the expected recovery in copper and oil over the medium term". There was no mention of iron ore or coal.

Copper production fell nine percent in the December quarter from a grade decline at it's Escondida mine in Chile, however the BHP is maintaining its production guidance of 1.5 million tonnes, helped by operational improvements Australia's Olympic Dam site.

BHP Billiton's oil and gas output - point of difference with other global miners - fell by five percent as it cut production at its U.S. shale fields amid decade oil price lows which caused a 7. 2 billion U.S. dollar pre-tax writedown of onshore shale assets.

"The strong performance of our conventional petroleum assets has offset lower shale volumes following a reduction in investment to preserve the value of our acreage in current market conditions, " Mackenzie said.

The company is also looking to a further 911 million U.S. dollar writedown from employee redundancies and mine closures, inventory repricing, global royalty and taxation issues, and the revaluation of its copper business.

BHP trimmed its full year guidance for iron ore by 10 million tons to 237 million tons because of the dam burst at its Somarco joint venture in Brazil. The company however expects to increase production at its Western Australia operations.

BHP is facing billions in fines and damages from the Somarco disaster, however the company said it was too early to estimate the costs related to the tragedy. Somarco is a joint venture between BHP and Brazil's Vale, each with an equal 50 percent stake.

At 1132 local time, BHP Billiton's shares were down 25 Australian cents (17.26 U.S. cents), or 1.70 percent to 14.48 Australian dollars (9.99 U.S. dollars).