BHP Won’t Meet $80 Billion Spending Target as Minerals Fall

By Elisabeth Behrmann - May 16, 2012
Bloomberg
BHP Billiton Ltd. (BHP), the world’s biggest mining company, won’t meet its $80 billion spending target for building mines and expanding assets over the next five years as it sees commodity prices declining.

“We should pause, take a deep breath and wait and see where the pieces fall around the world,” Jac Nasser, chairman of the Melbourne-based company, said today to reporters in Sydney. He declined to say how much spending would be cut.

BHP joins Rio Tinto Group, the third-biggest mining company, in slowing spending as costs rise and prices fall in a weaker global economy. The industry has more projects than cash flows and companies will have to prioritize spending, Nasser said today in an earlier speech.

“The tailwind of high commodity prices has contributed to record growth in the sector,” Nasser said in the speech. “Now we have a period where those tailwinds are moderating and we expect further easing over time.”

BHP declined 4 percent to A$32.50 at 3:09 p.m. local time in Sydney. That’s their lowest level in almost three years. Rio fell 3.6 percent to its lowest since October 2009.

Commodity prices have declined 12 percent from this year’s high in February, according to the Standard & Poor’s GSCI Spot Index of 24 raw materials.

Different Environment

“The environment was different,” when Chief Executive Officer Marius Kloppers outlined the company’s plans to spend $80 billion on new developments, Nasser said to reporters. The price for iron ore, BHP’s biggest revenue earner, has declined 29 percent since Kloppers unveiled the investment schedule in February 2011. The CEO reaffirmed his commitment to the spending as recently as February.

BHP’s board is due to decide on the development of three major projects by the end of this year, including a port expansion at Port Hedland in Western Australia that may cost $22 billion, Credit Suisse Group AG said in an April 12 report.

It will also decide by the end of the year on an expansion of the Olympic Dam copper mine in Australia, Nasser said today. The mine may cost $27.4 billion, according to an October estimate by Deutsche Bank AG.

Mining companies operating in Asia are facing lower cash flows as prices retreat from “stratospheric” levels, credit rating company Standard & Poor’s said in a May 3 report.