(From THE WALL STREET JOURNAL) 
   By Jeffrey Sparshott 

The first major initiative of Marius Kloppers after he became chief executive of the world's biggest mining company was a bold bid to take over rival Rio Tinto PLC. That failed all-stock offer--which was valued at one point at $147 billion and would have been the sector's biggest deal ever -- now seems to belong to a different epoch.

BHP Billiton Ltd. pulled its offer in November 2008 as commodity prices crashed, credit markets dried up and share prices across the sector collapsed. Rio Tinto and other top competitors slashed spending on new projects and laid off thousands of workers. Some also scrambled to pay down billions of dollars of debt.

The 47-year-old Mr. Kloppers says BHP had layoffs and closed a nickel mine, but it didn't have to do anything drastic. BHP reduced staff to 99,000 employees and contractors in fiscal 2009 from 102,000 at the end of its fiscal 2008.

BHP emerged from the crisis with little debt and strong cash flow. And it was able to commit $5.8 billion to a joint venture with Rio Tinto that combines the companies' prized Australian iron-ore assets. Now, it's looking for more opportunities to expand.

In an interview at BHP's London offices, Mr. Kloppers discussed the global economic slowdown and the company's strategy through the recovery.

Excerpts:

WSJ: What do you have to show for your relative position of strength?

Mr. Kloppers: I think the biggest thing is we didn't have to slash and burn. We could keep the dividend up. We could keep investment up. And really the [projects] you are building in a downturn -- because construction costs are cheaper, labor is cheaper and so on -- are very valuable. So I think those things will stand us in very good stead as we move forward.

Certainly the message I get back from investors is that if there is anything that has hit home it is the decision to lift and continue our dividend through the worst of times.

WSJ: How do you prioritize your spending?

Mr. Kloppers: We start with where we want to be: We don't want to lose an A rating on the balance sheet, which imposes the first set of constraints. And then we look at the growth opportunities. We always compare our internal growth opportunities against the option [of buying back our stock]. And then we want to maintain and increase the dividend. And that sort of sets the boundary conditions. I do think we've got the capacity to consider doing things beyond the organic only. I wouldn't like to speculate what they are. But certainly we are always looking at additional growth opportunities outside the portfolio.

WSJ: You've pushed to change the way iron ore is priced to an indexed system and away from annual contracts, which Chinese steelmakers prefer. Any concern you may be alienating customers?

Mr. Kloppers: We want iron ore to be sold in the same way all other commodities are sold (at market clearing or spot prices) where we've never had a minute's worth of argument.

We continue to sell record amounts of product to China, and we have done business there in a normal fashion and uninterrupted throughout the period earlier this year when prices were very volatile and discussions got quite heated.

WSJ: Are volatile commodity prices affecting your investment plans?

Mr. Kloppers: The short run really doesn't impact us that much, unless it was in the period of crisis in February, when people genuinely didn't know whether the world's banking system was going to withstand it. I think then we clearly took pause and said, let's be extraordinarily cautious here on how much cash we keep on the balance sheet.

But the majority of our thinking is: What are long-run prices? Where are currencies going? Where are costs going -- and taking at least a five-to-25-year view, because that is the horizon on which the capital we put in the ground is going to deliver product.

The challenge for us is really not the slow rocky recovery. The world will recover. Growth will resume. We think China is going to be very materials intensive. And India and Southeast Asia will follow.

So we are very optimistic about the long run and basically our investment plans are aligned with that long run optimism.

WSJ: Do you plan to increase capital spending?

Mr. Kloppers: The big products that we've got today are probably going to be the big products we have in 10 years. The majority of our capital expenditures will probably go into oil and gas, copper and uranium, coking coal, iron.

Our focus is on our Jansen [potash] project [in Canada]. We spent $100 millionon it last year, and we will spend more this year. And that is really the project we would like to get into production as soon as possible. We think it is very exciting.

WSJ: Haven't you moved away from some commodities?

Mr. Kloppers: We've probably de-emphasized aluminum and alumina and nickel. They are still very good businesses but relative to the other products the profit potential is less.

(END) Dow Jones Newswires

November 08, 2009 19:56 ET (00:56 GMT)

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