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New watchwords at BHP: sequencing, discipline, cash flow

Kloppers does not have to look over his shoulder, his job looks secure for now

BHP Billiton addressed shareholder concerns about its ambitious investment plans in four mega-projects on Wednesday saying it will match capital expenditures closely with cash flows and stagger the project pipeline.

In a speech to a Macquarie Bank conference in Sydney this morning, BHP’s chief executive of aluminum, nickel and corporate development, Alberto Calderon, stressed the company’s intention to “sequence” these projects in a way that retains discipline and does not forego short-term returns, reports Fox Business.

The world’s number one miner by market value has been criticized in the past for risking profits on various large and expensive long-term projects, rather than increasing dividends, buying back shares or taking on projects with quicker pay-back.

BHP’s four giant projects will require more than $120 billion of capex over the next 15 years but only increase returns from 2023, according to Deutsche Bank estimates.

The megaprojects worrying investors most are the Olympic Dam expansion in South Australia, the construction of an outer harbour at Port Hedland, the growth of its US shale gas operations and the expansion of its Jansen potash  mine in Canada.

Some institutions have even reduced their exposure to BHP. At the end of March, BlackRock’s World Mining Fund reduced its position in BHP to around 6.5% from double digits before.

While the price tag for the Outer Harbour expansion to add 100 million tonnes per annum of capacity at the terminal is above $40 billion, of the four projects Olympic Dam is by far the most ambitious.

BHP has already received approval for a $30 billion expansion of the existing uranium, copper, silver and gold mine in South Australia.

The planned open pit mine adjacent to the current Olympic Dam underground operation would be the world’s biggest. Shares in BHP closed today 0.78% higher at A$36.25 in Sydney. The company also has a primary listing in London and is worth over A$180 billion.

(Photo: BHP Billiton CEO Marius Klopper, YouTube)