Reuters reported that BHP Billiton has played down suggestions that it has decided to delay its AUD 20 billion Port Hedland harbor expansion as softening demand and stubbornly high costs force miners to review spending plans.
Newspaper speculation surfaced after Mr Jimmy Wilson, who took the helm of BHP's iron ore division, sent a note to employees about the challenges facing the market.
A BHP spokesman confirmed that Mr Wilson had reiterated that the company is reviewing future growth projects in the current environment, but added that "He did not say anything about Outer Harbor approvals and the fact remains that no decision has been made on the project."
Chairman Mr Jacques Nasser said in May 2012 that BHP was rethinking its plans every day as the economy deteriorated and put the brakes on an AUD 80 billion plan, outlined in 2011, to grow the company's iron ore, copper and energy operations.
Building an outer harbor at Port Hedland, one of Australia's biggest ports, is one of the top three projects BHP outlined in its AUD 80 billion plan. The port development has long been seen as the project most likely to go ahead, even as the company pares spending in response to global uncertainty and shareholder jitters.
The investment is crucial if BHP is to double iron ore production to 440 million tonnes a year as planned. But analysts have begun to question all projects after China's growth rate slowed to its slackest pace in more than three years in the second quarter.
The outer harbor will take about eight years to complete, at a cost analysts estimate at more than AUD 20 billion. Once finished, it would be able to handle 240 million tonnes of iron ore a year, adding to the 220 million tonnes the company is targeting in an inner harbor expansion already under way.
The development would include a 4 kilometer jetty, a four berth wharf and a 32 kilometer shipping channel.
The Australian newspaper reported at the weekend that BHP could delay a decision on the AUD 30 billion proposed expansion of the Olympic Dam mine in South Australia.
BHP declined to comment directly on the report but said there was no change in the status quo.
A decision by BHP to delay either of the two projects would be one of the clearest signs yet of deteriorating sentiment, but analysts said the move could be positive for the shares because investors would hope for better dividends.
Citi analysts said in a note that "In our opinion, the delaying, staggering or cancellation of these large projects would likely be a continued driver of out performance of the BHP share price. Any project delay would likely be coupled with a capital management program where the surplus cash flow would be returned to shareholders."
Source - Reuters
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