Melbourne - Top global miner BHP Billiton [JSE:BIL] shelved
its planned $20bn Olympic Dam copper expansion on Wednesday as it reported a
35% slide in second-half profit in the biggest sign of the pain inflicted by
the slowdown in China’s economic growth.
BHP reported its first annual profit fall in three years in
the face of rising costs and falling commodity prices, wrapping up a torrid
earnings season for the world’s biggest miners.
They were all battered by weaker prices for iron ore,
copper, coal, nickel and aluminium as economic growth in big-buyer China slows
to its weakest pace in a decade.
BHP CEO Marius Kloppers said the company needed to take a
fresh look at the massive Olympic Dam expansion, w hich had been due for a
final decision in December, in light of the tough market conditions.
“As we finalised 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.
The Anglo-Australian giant has also been hurt by lower
natural gas prices and industrial action at its coking coal mines, with its
bottom line marred by $2.5bn in writedowns on its shale gas and nickel assets
and charges on projects, including Olympic Dam.
BHP’s second-half attributable profit before exceptional
items fell to $7.16bn from $10.98bn a year earlier, as calculated by Reuters
from the full-year results. That was slightly ahead of analysts’ forecasts
BHP’s full-year profit to the end of June fell to $17.1bn
from $21.7bn a year earlier.
In BHP’s biggest business of iron ore, softening demand
growth from China has been particularly painful. The world’s biggest iron ore
miner, Brazil’s Vale, last month reported its worst quarterly earnings in two
With sharp falls in commodity markets this year, analysts
and investors had been looking for signs of future capital spending cuts.
Although there has been spending restraint at the fringes, none of the
heavyweight miners has yet cut back on core growth projects.
BHP flagged in May it was putting the brakes on an $80bn
plan to expand its operations, and investors were keen for an update on whether
it was going to delay three major projects - Olympic Dam and the Outer Harbour
iron ore development, both in Australia, and the Jansen potash project in
All three were due to go to the board for final approval by
Construction contractors are already getting nervous about
an end to the mining construction boom, although they say it should help ease
cost pressures on existing projects for workers and materials as demand growth
“I think that we are close to the current peak of
construction work,” Nick Bowen, managing director of mining services company
Macmahon, told Reuters this week.
Cost cutting at operations will also be a key factor under
scrutiny, with BHP having recently flagged it may have to cut jobs at its
Australian coal mines due to worsening market conditions.
BHP raised its final dividend by 2 cents to 57 cents, but
that was below analysts’ forecasts of around 58 cents, which was seen as a sign
of caution on the outlook.
As expected, BHP revealed earlier this month it would book a
$2.8bn writedown on the US shale business it had bought last year and $450m in
its Australian nickel division, which led Kloppers and petroleum head Mike
Yeager to forgo their bonuses this year.
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