BHP may curtail iron ore expansion

2012-06-22 10:19

Melbourne - BHP Billiton [JSE:BIL] is likely to cut the first stage of its estimated $10bn iron ore port expansion in half, analysts and investors said, as it looks to slash capital spending due to rising costs and an uncertain market outlook.

The Outer Harbour project in Western Australia is one of three mega projects in an $80bn pipeline that BHP has slowed, under pressure from shareholders who want bigger dividends and buybacks rather than expensive projects with no short-term returns.

In February, BHP committed $779m in early funding to build a 100 million tonnes a year outer harbour facility and said at the time it would be reviewed for full approval in the December quarter this year.

Five analysts and two investors said on Friday BHP's incoming iron ore chief, Jimmy Wilson, would have to cut plans for the Outer Harbour.

“He's been told he's got to re-cut it to a smaller project,” UBS analyst Glyn Lawcock said.

They predicted the logical outcome would be to cut the first stage of the expansion to 50 million tonnes a year from 100 million tonnes a year.

Analysts and investors said given that BHP has about 50 million tonnes a year extra rail capacity, the company was likely to look for ways to milk its existing mines for extra output to fill that capacity, in which case it would only need 50 million tonnes a year of new port capacity.

“They’re looking at it as 50 million tonnes a year,” said another analyst, who declined to be named because they were not authorised to speak to the media.

BHP Billiton declined to comment on whether its incoming iron ore chief had been told to cut the scope of the outer harbour project.

A spokesperson directed Reuters to recent comments by senior BHP managers on the company putting the brakes on spending plans.