OECD 'holds key to commodity prices'

BHP Billiton’s chief executive sounded a cautionary note at the group’s annual general meeting yesterday, saying that it will be the middle of next year before the world’s biggest mining group would know if demand for commodities had stabilised. Marius Kloppers said Chinese demand had largely accounted for the growth in commodity prices in the last six months, but while Chinese stockpiling was largely complete, he said, growth in 2010 depended on demand from OECD countries.

“The key driver of incremental commodities demand in the near term will be to what extent the OECD experiences a more usual post recession restocking, or whether the restocking will be more lethargic this time around. It is our view that we will come out of this recession less strongly than in previous cycles. We therefore believe it won’t be until mid 2010 before we see clean underlying demand that is not masked by inventory effects.”

Mr Kloppers stressed that while the recovery would be sluggish, the group had a strong cash position, adding that BHP was likely to invest $10bn in capital projects in 2010.

Pointing to the group’s iron ore joint venture with rival Rio Tinto in Western Australia, Mr Kloppers added that the company was always looking for merger and acquisition opportunities: “Our strategy basically constrains us to large, low-cost, long-life, expandable assets that are export orientated, and these assets only comet o market very very seldom,” he said.

“You shouldn’t expect that we do transactions of smaller companies with smaller assets, but from time to time we’re going to do things like the Rio Tinto JV.”

The two groups signed the iron ore joint venture in Australia after BHP Billiton failed to secure a takeover of its rival. Earlier this month, the two scrapped plans to jointly market 25 per cent of the operation’s output. There have been unconfirmed reports that the two companies are in talks about a $1bn merger of their Canadian diamond operations.

Outgoing chairman Don Argus was forced to defend Mr Kloppers’ pay at the meeting. Mr Kloppers received a total of $10.4m in salary, bonuses and other benefits last year. The award, which is up from $6.9m last year comes after the group recorded an annual pre-exceptional profit of $5.9bn, a 61.8 per cent drop on its 2008 numbers.

While shareholders were paid an 82 cent per share dividend, a 17.1 per cent increase on last year, Mr Kloppers’ basic salary rose by 19 per cent to more than $2m. His annual cash bonus fell by a little under $100,000 to $1.7m

Mr Argus told shareholders there had been “misinformed reporting” of Mr Kloppers’ pay and most of his remuneration package was made up of incentive payments, which were dependent on BHP’s financial performance. “I want to assure you that despite what has been reported Marius did not receive a 51 per cent increase in his pay,” he said.

“Year on year his actual total remuneration was constant and his short-term incentive decreased. His base salary was also frozen for this current financial year that is 2009/2010, as were all directors’ fees.”

Mr Argus will step down next year.