BHP shelves Olympic Dam expansion

22 Aug 2012, 7:18 pm   -   Source: AAP
BHP Billiton has scrapped its $A28.73 billion Olympic Dam expansion amid low commodity prices. (AAP)

BHP Billiton has scrapped its $A28.73 billion Olympic Dam expansion amid low commodity prices. (AAP)

BHP Billiton has shelved $US50 billion of projects in a major cost-cutting move, signalling an end to the vast growth of mining in recent years.

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BHP Billiton has shelved $US50 billion ($A47.89 billion) of major projects in a major cost-slashing program, signalling an end to the vast growth of the mining boom.

The $US30 billion ($A28.73 billion) expansion of the massive Olympic Dam copper-uranium-gold project in South Australia has been shelved along with the $US19 billion ($A18.20 billion) Port Hedland harbour expansion in Western Australia.

Low commodity prices and soaring operating costs were blamed by BHP chief executive Marius Kloppers for the announcement on Wednesday.

He said the economics no longer stacked up for what would have been the world's biggest uranium mine at Olympic Dam.

"In a regime of falling prices, costs cannot continue to go up forever and it is very important to bend the trend," he told reporters.

"What you have is you've got a very high Australian dollar exchange rate and very high capital costs at this moment in time.

"If you build something while those conditions are in place, you effectively lock in the economics of the project in an unfavourable way because the capex (capital expenditure) is all spent during that unfavourable way."

Mr Kloppers said he would redouble efforts to develop new technology to improve the project's economics.

However, whether BHP keeps the Olympic Dam project is another matter.

An angry South Australian Premier Jay Weatherill said it was a dark day for the state and BHP would have to work hard to win over the state again.

South Australia's Chamber of Minerals and Energy chief executive Jason Kuchel said he was confident the project would still go ahead and be a major contributor to the economy, just not now.

No more major projects were likely to be approved by BHP in the current year, with $US22.8 billion ($A21.84 billion) already committed to 20 projects including a planned increase in iron ore output to 220 million tonnes from a current 180 million tonnes.

Mr Kloppers said its first priority for shipping the extra iron ore would be the cheaper option of focusing on using the inner harbour at Port Hedland rather than developing the outer one.

With prices for major commodities plunging in the past year, increased production to counter the falling prices was Mr Kloppers' message.

He blamed "one-off" operational issues affecting production of three assets: Queensland coal, copper mining in Chile and offshore natural gas in the US.

Production in all those areas would be double-digit this year, he said, while the company's Eagle Ford shale business in the US would become its largest producing petroleum field, with output of 200,000 barrels by 2015.

"Achieving these strong results before the upside these three facilities have as they come back is testament to the value of our diversified approach," he said.

The low commodity prices and about $US2.5 billion ($A2.39 billion) of write-downs on US shale, Australian nickel and Olympic Dam contributed to the weaker profit.

There was a 15 per cent decline in underlying earnings before interest and tax to $US27.2 billion.

BHP said it expected more volatility in commodity markets in the short term due to weakness in manufacturing and construction sectors in all key markets weighing on market sentiment.

"However, in the medium term we expect supportive economic policy and a broad growth bias, particularly in China, to lead to measured improvement in the external environment beginning in the first half of the 2013 financial year," the company said in a statement.

BHP increased its final dividend by two US cents a share to 57 US cents a share.

City Index analyst Peter Esho said BHP had ridden out the difficult economic conditions well.

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