MELBOURNE (Reuters) – Top global miner BHP Billiton delayed its planned $20 billion Olympic Dam copper expansion on Wednesday and said no other major projects would be approved in the year to June 2013, the biggest sign of the pain inflicted by China’s slowdown.
BHP reported a 35 per cent slide in second-half profit and its first fall in annual profit in three years in the face of rising costs and falling commodity prices, wrapping up a torrid earnings season for the world’s biggest miners.
“It’s pleasing to see that there’s some capital discipline from the company, so they are not ploughing ahead irrespective of current difficult economic conditions,” said Tim Schroeders, a portfolio manager at Pengana Capital.
Big miners have all been battered by weaker prices for iron ore, copper, coal, nickel and aluminium as economic growth in big-buyer China slows to its weakest pace in more than a decade.
The Anglo-Australian giant has also been hurt by lower natural gas prices and industrial action at its coking coal mines, with its bottom line marred by $2.5 billion in writedowns on its shale gas and nickel assets and charges on projects, including Olympic Dam.
BHP CEO Marius Kloppers said the company needed to take a fresh look at the massive Olympic Dam expansion, which had been due for a final decision in December, in light of tough market conditions, which it expects to persist in the short term.
“As we finalised all the details of the project in the context of current market conditions, our strategy and capital management priorities, it became clear that the right decision for the company and its shareholders was to continue studies to develop a less capital intensive option to replace the underground mine at Olympic Dam,” he said in a statement.
Investors, who have been pressing the major miners to return capital to shareholders rather than splash out on major projects amid global uncertainty, were relieved BHP had decided to hold back on the project to quadruple copper output from Olympic Dam.
“Cancelling Olympic Dam was probably a good announcement, as the market was looking for something of that nature, or hoping for something like that. So it’s a sensible move on their part,” said Hayden Bairstow, an analysts at CLSA.
BHP’s second-half attributable profit before exceptional items fell to $7.16 billion from $10.98 billion a year earlier, as calculated by Reuters from the full-year results. That was slightly ahead of analysts’ forecasts around $6.96 billion.
Full-year profit to the end of June fell to $17.1 billion from $21.7 billion a year earlier.
In BHP’s biggest business of iron ore, softening demand growth from China has been particularly painful. The world’s biggest iron ore miner, Brazil’s Vale, last month reported its worst quarterly earnings in two years.
Expanding Olympic Dam, the world’s fourth-largest known copper deposit and largest uranium source, was one of three mega projects that were due to go to the BHP board for final approval by December 2012 in an $80 billion pipeline of projects that BHP had flagged were likely to be slowed.
The Olympic Dam plan would have involved digging a massive open pit over several years capable of producing 750,000 tonnes of copper and 19,000 tonnes of uranium a year, but the economics no longer made sense following a 25 per cent slump in copper prices over the past 18 months.
The company said as a result of the plan to review the project, it would not be ready to approve any expansion before its agreement with the South Australia state government’s deadline of December 15, 2012.
BHP said it did not expect to make any additional major project approvals in the current financial year, which ends in June 2013, but was going ahead with $22 billion worth of capital spending in the year ahead for projects already approved.
Kloppers made clear the company would not approve any other major projects this year, which left open the question on when it would go ahead with its two other mega projects — the Outer Harbour in Australia and the Jansen potash project in Canada.
He told reporters the company would focus on squeezing as much as it could out of the existing inner harbour iron ore port at Port Hedland before pushing on with a new outer harbour, and remained committed to getting into potash in the long run.
“I don’t think BHP has been given a mandate from investors and shareholders to go out and write blank cheques. I think they’re very mindful of that and they’re bunkering down and responding to the feedback they’ve been getting,” said Peter Esho, chief markets analyst at broker City Index.
Construction contractors are already getting nervous about an end to the mining construction boom, although they say it should help ease cost pressures on existing projects for workers and materials as demand growth slows.
“I think that we are close to the current peak of construction work,” Nick Bowen, managing director of mining services company Macmahon, told Reuters this week.
BHP raised its final dividend by 2 cents to 57 cents, but that was below analysts’ forecasts of around 58 cents, which was seen as a sign of caution on the outlook.
BHP revealed earlier this month it would book a $2.8 billion write-down on the U.S. shale business it had bought last year and $450 million on its Australian nickel division, which led Kloppers and petroleum head Mike Yeager to forgo their bonuses this year.
BHP’s shares slipped 0.3 per cent to close at A$33.16 after the announcement, roughly in line with the broader market’sdecline.
It’s London-listed sharesfell 1.6 per cent in early trading in a wider marketthat was down 0.8 per cent.
(Editing by Neil Fullick)
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