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Faith in BHP’s Outer Harbour fading fast

New doubts have emerged over world number one miner BHP Billiton’s (LON/ASX/NYSE:BHP) $20 billion outer-harbour project at Port Hedland, Australia, with big names such as JPMorgan and Deutsche Bank saying they expect it to be axed.

Mining Australia reports the German bank said in a note to investors Tuesday that the outer harbour had “questionable affordability” and that BHP would be wise to shelve it.

Analysts at JPMorgan also removed the Western Australia project from their base case assumptions, despite the miner having already committed almost $1 billion in early-stage funding to prepare for expansion work.

Both investment groups suggest BHP’s new iron ore leader, Jimmy Wilson, will seek more modest capacity increases through renovations to Port Hedland’s inner harbour, or perhaps by constructing a smaller version of the outer harbour.

It is said that Wilson – who took the job only last month – has “told thousands of his staff” that the global resources giant is reviewing all of its plans in the Pilbara, the heart of the country’s iron ore operations.

BHP is on track to increase Pilbara iron ore production from about 160 miliion tonnes to 240 million tonnes over the next few years, but the construction of the harbour could now be postponed for at least two years, drawing a line under future growth.

A decision from the Melbourne-based company’s board on whether to approve the outer-harbour project at Port Hedland is due by the end of 2012.

The company, which has more than 40,000 employees and operates in dozens of countries, is also scaling back or postponing other expensive expansion projects – the Olympic Dam copper-uranium-gold-silver mine in South Australia, Escondida and Jansen.

BHP is expected to update the market about its expansion plans when it releases results on August 22.