The rate and nature of Chinese growth is changing

“Inevitably, the rate and nature of the growth is changing and it’s becoming less commodity intensive and more consumer focused. But let’s be clear, in the new normal, we’ll see continued economic growth from this larger base, including the ongoing increase in the long-term demand for all of our commodities.”

Tier 1 assets are key in mining

“There’s no substitute for Tier 1 assets. Across our commodities, we have a portfolio of leading assets, providing robust margins and cash flows. Others who own or develop third or fourth-quartile assets on a highly-geared balance sheet may do okay when prices are high, but it’s extremely challenging for them in the long term, and particularly in today’s environment. Well-run Tier 1 assets backed by a sound balance sheet is the only strategy that can create sustainable shareholder returns”

We believe that the iron ore market is fundamentally in balance

“a lot of things will happen during the rest of this year and who knows where sentiment will actually go. But if you look at the basic numbers, if you look at our forecast, which a lot of work and effort has gone into, we believe that the market is fundamentally in balance.”

We’re doing just fine at $55 iron ore

“With a unit cost of $16.20 a tonne, or converted to today’s exchange rate and energy costs, $15.20 a tonne, compared to an iron ore price of $55 a tonne, we’re doing okay. The margin is all right. And for me, sitting here today thinking that I’m going to sacrifice that margin, so that someone else somewhere in the world can bring capacity back on, to me, it just doesn’t make sense.”

I’m not about ticking boxes

“As I have mentioned during my comments, I’m very, very focused on shareholder value. I’m not about ticking boxes. I’m not about doing something, because it’s on somebody’s list, or it’s been reported in the media, or whatever. I’ll do it, because it delivers shareholder value. I believe it because it’s the right thing to do for shareholders. ‘

There aren’t enough copper projects coming on stream

“Copper’s going to be tough going forward. There aren’t enough projects that are coming on stream. Our projects are tough, because the ore bodies are complex; they’re deeper ore bodies, lower grade in a number of cases, and the approval cycle is extended.”

Energy costs benefit with a bit of a lag. Also generate energy from other sources

” as the price falls, we get a bit of a lag with regard to how it goes through into the cost structure. That’s one issue. Second one is, a lot of our energy inputs are self-generated in many cases. If you take the smelting system by way of example, we generate 50% of our own energy there, and a lot of hydropower there as well. So not all of our energy’s obviously in the oil sector.”

It’s getting tougher for us to reduce our costs

“we’ve reduced our costs by $5.5 billion over the past 2.5 years, and it is getting tougher.”

The industry may not get back to the demand that there was before prices started to decline

“post to global financial crisis, the market dynamics have actually changed. If you thought that the industry goes through cycles and you return to where you came from, I think the new normal is actually signifying that the return probably won’t be to the point that you left before prices started declining.”

Costs are reducing, efficiencies improving across commodities

“I think that’s a function of everything. We’re seeing, across the board, that costs are reducing; efficiency is improving; people are expecting greater value for less; and so on. And I think that we’ll see that across commodities as well. Still be a healthy place to be, but not the heady heights that we hit.”

We are asking ourselves are we spending enough to sustain installed capacity

“we are getting to the point where we’re asking the question now, are we making sure we’re spending enough to sustain that existing installed capacity, because if you cut to the chase, that installed asset base is a real powerhouse of this Company and the growth facilities that will come, will take their place in that portfolio. But the engine room that’s there now has to be sustained. And so I think we’re at a fairly balanced level here now.’

Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Cash from ops 14b

“We reported underlying earnings of $9.3 billion. We increased volumes and reduced costs, which enabled us to significantly reduce the impact of weaker prices. A focus on cash generation throughout the business led to net cash from operations of $14.3 billion. ”

We’re now in a position of strength

“We’re now in a position to strength, which allows us to not only meet our commitment to materially increase cash returns to shareholders, but also to be robust against low prices, to be in a position to take advantage of opportunities, which may present in the future.’

100m tonnes of new iron ore next year but only 20m in new demand

“If you look at 2015, we’re expecting that about 100 million tonnes of new capacity will come on. There will be growth in demand of about 20 million tonnes.”

Our cost is $17, still making nice margin

” if you take a current spot exchange rate and the spot energy price into account, in the iron business, costs are running at around $17 per tonne cash cost, as compared to the selling price today of $62 a tonne.”

You have to take off a lot of capacity to really balance the market

“as I’ve said before, if you want to balance the market, then you can’t just take off three or five million tonnes and expect that suddenly the price is going to go through the roof. You’ve actually got to take off sizable chunks, probably 100 million tonnes of capacity.”

No OPEC in iron ore

“So whether you like it or not, there is no OPEC in iron ore, its independent producers making their independent decisions. And the decisions that we make are in the best interest of our shareholders. That’s very, very important.’

Hi cost producers didn’t phone us up and say I’m bringing iron ore to market, so I’m not doing anything for them

“No, look, these people when they came into the market didn’t phone me up and say, jump for joy, I’m going to bring on some high cost production. So I don’t feel any responsibility for them. Now, yes, I’m sad for employees and communities and so on, but our people need to realize that the mining industry is cyclical. It goes through cycles. It’s supply and demand. It’s seasons. It’s a whole raft of things.”

Not lookng at M&A

“In relation to M&A, yes, I was very strident in my comments that we’re not looking at any major M&A. There are raft of things that, I don’t know, are on the market. These are a lot of the stress assets, and guess what, they distress for a reason. The high cost, the sorts of businesses that we are talking about earlier when we talk about and people needing to take the business of the market because it’s underwater, losing money.

If you look at the true opportunities for M&A, never say never, but these are few and far between if you’re really focusing on tier-1 low-cost opportunities. And unfortunately if one of those came on to the market and who knows when, that will be contested. So despite the fact that we’ve got a very strong balance sheet, it doesn’t automatically flow that we’re going to rush out and do it.”

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“I believe that we’ve set ourselves firmly on the path forward to becoming a leaner might tightly run business in pursuit of greater value for shareholders”

“We are seeing slightly slower growth in China but at least off a much bigger base. We are seeing continuing underlying structural issues in Europe and increasing uncertainty over the unwinding of the easing programs particularly in the USA.”

“Look in relation to capital allocation and investment decisions, I have mentioned that we have strengthened investment committee process and the inputs into that process from business evaluation group and our technical evaluation group. Quite frankly during the growth period, we had relaxed some of the checks and balances that those groups provided to our investment committee.”

“I think the best way I can describe it is that there are things that need to be worked through in the middle of an organization. You can’t actually determine these from the top of the organization.”

“You need the subject matter experts. The investment community can’t make decisions as to whether there has been enough infill drilling. They can’t make decisions as to whether the hydrology model rather the geo-technology. They’ve really got to rely on the middle level experts to do that. We had weakened that process.”

“Some people have said why don’t you spend your time traveling around the world whatever? The answer is no. I spend the majority of my time focusing on the contour of change that we need to make, focusing on the steps that we need put in place in terms of clear goals, clear vision, clear incentives, clear delivery rather than being administrator for tourism. I have visited our major operations around the world, Montreal, Perth, Sydney, Brisbane, Melbourne and so on. I have visited those to deliver the message. Then I step back and I know that I am looking at what they’re doing, I know what they need to do and they are delivering. So is the journey to finish an element? No, it’s not but we’ve got the right steps in place and have a look at the results, we’re delivering.”

“in relation to Tom Price. We’ve got a lot of good equipment there, it’s being well looked after, well maintained, it has got a lot more life in it and that’s how we’ll extend the life there.”

“I have learned in my career, if you want to transfer technology, if you want to transfer knowledge, the best way to do it is actually to transfer people. And that way you can principally keep people working side by side and see closely what’s going on and how you can get the same sort of benefits really flowing through, it’s not the concept – we all, private equity, yeah we don’t know what they do. The trick is how you actually implement it, implementation is hard and you need to have the knowledge and experience and you always need to have done it do it. ”

“Last year is definitely our peak [Capex] for the foreseeable future.”