BHP ditches Olympic Dam as profit tumbles
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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