The world’s number one miner, BHP Billiton (LON/ASX/NYSE:BHP), has delayed its $30 billion Olympic Dam copper-uranium expansion and said no major projects would be approved until June 2013 as it tries cutting costs.
The company announcement came out on Wednesday as BHP reported a 35% drop in second-half profit, as well as its first decrease in annual profit in three years. The miner blamed the dull results on the slump in commodity prices.
Analysts see the move as the clearest signal yet that the global mining boom has come to an end. By delaying or scaling back projects worth more than $50 billion, BHP is showing an obvious withdrawal from an – until now – aggressive expansion strategy.
CEO Marius Kloppers said that BHP needed to take a fresh and cheaper look at the Olympic Dam expansion, which had been due for a final decision in December.
“As we finalized 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.
BHP’s net profit of $15.4 billion was far lower than last year’s figure of $22.46 billion, but managed to beat market consensus of $14.6 billion.
Doubts about the lauded project first emerged a couple of months back when BHP told markets of its intention to cut back an $80 billion capex programme. A JP Morgan research note out in June also suggested Olympic Dam will not go ahead “for at least three or four years, if at all”.
In June BHP bought additional exploration plots near Olympic Dam bringing the money spent this year by the miner, to increase the footprint of the project, to more than $20 million.
BHP had received government approval for the mammoth $30 billion expansion and also has a long-term labour agreement in place at the existing operations.
The ambitious project in South Australia’s outback would have been the world’s biggest open pit. It included the construction of 270km of powerlines, a 400 km pipeline, a new desalination plant and a 105km railway.
Major global miners have all been battered by weaker prices for iron ore, copper, coal, nickel and aluminum as economic growth in China, one of the world’s largest consumers of those commodities, slows to its frailest pace in over a decade.
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5 Comments
anonymous
I love seeing stories like this. Clearly we’re ready for another upleg in the commodities bull market to begin. Fantastic.
Golddigger469
I got to ask what to me is such an obvious question: what were these guys, Kloppers et al., smoking when they thought that this was a viable project? It just is too big, cost too much money on the front end to ever be anything other than a pipe dream (comments above notwithstanding). Once you start to figure in the inevitable overruns and unforeseen costs (oh you think they have it all figured out? then you haven’t worked in this biz for long and still believe all the press releases) this pit would swallow the company long before they got a return on investment.
And don’t forget these are one of the main whingers now complaining about wages in the industry–does anyone think a project like this would reduce the current engineering and labour shortage?
Doctor Who
Every long term price model I look at for copper indicates a price rise due to a lack of supply. BHP is just reinforcing this perspective by putting this massive project in the bank so-to-speak. The delay, while studies proceed, suggests that the delay is only that and they expect a higher price for the entire project. So when the “new studies” are released you will see a higher IRR and a much better NPV. Just good business.
Andrew Statham
This is a project that was estimated to deliver 750,000 tonnes of copper into the market per year – not to mention 19,000 tonnes of Uranium. This announcement was expected, but still makes us wonder – should we be taking this as a negative sign of demand, or a positive sign for copper prices? Put another way, how accurate is BHP management’s forecasting of future demand?
kirby
This project would have required an Feas study (say 1 to 2 years), overburden prestripping for about 4 years before any ore was extracted – point being its a long term project with huge upfront capital. In my view, the fact that BHP put this on the shelf has nothing to do with the current softening of commodity prices, or the longer term demand for copper. The project is simply too captial intensive, even for them. They can get a better return from investing in other projects.