By Robb M. Stewart
MELBOURNE--BHP Billiton Ltd. (BHP) Wednesday reported its first
drop in annual profit for three years and said it won't approve any
new projects until at least mid-2013, in the biggest sign yet that
the global mining boom has run its course.
BHP announced plans to dramatically scale back a planned
expansion of its Olympic Dam copper and uranium mine and defer
development of a Queensland coal deposit as it moves to conserve
cash in the wake of a slump in commodity prices, triggered largely
by weakening Chinese demand.
Just a year ago, BHP was talking up the prospects of investing
US$80 billion to ensure it was able to capitalize on Asia's demand
for materials such as coal for firing power stations and iron ore
used in steel frames during construction of high-rise buildings.
The company was also spending more than US$12 billion on
acquisitions to gain exposure to the U.S. shale gas boom.
The rapid change in strategy is heaping pressure on BHP Chief
Executive Marius Kloppers as investors seek better returns from the
world's largest mining company by output, whose share price is
languishing near three-year lows, even if the stock of mining peers
like Rio Tinto PLC (RIO) is also sharply down.
Melbourne-based BHP said its net profit for the year to June 30
fell 35% to US$15.42 billion, including charges taken on Olympic
Dam in South Australia and previously announced writedowns of U.S.
shale gas assets and Australian nickel projects.
But the world's largest mining company by output and market
value said it expects the global economy to stabilize in the first
half of 2013 and then improve, which would provide support for
commodity demand and pricing. Growth in fixed-asset investment in
China will shore up demand for iron ore, one of the biggest drivers
of BHP's earnings, the company said in a statement.
Big diversified mining companies have been tightening their
focus on cutting costs and reconsidering investment plans to shore
up weaker cash flow, although they remain positive about the
longer-term outlook for demand. Rivals such as Xstrata PLC (XTA.LN)
and Anglo American PLC (AAL.LN) have trimmed their near-term
capital expenditure plans.
BHP has 20 projects underway costing a combined US$22.8 billion,
and it said its capital is largely committed for the next financial
year. That means decisions on whether to build $10 billion-plus
projects such as building an Outer Harbour at Port Hedland in
Western Australia to facilitate more exports of iron ore, and the
Jansen potash project in Canada, are on ice for at least ten more
months.
In a separate statement, BHP said it was examining options to
replace previous plans for an underground mine at Olympic Dam in
South Australia. The decision is significant as the expansion was
estimated by analysts to cost up to US$30 billion, and the
acquisition of Olympic Dam in 2005 was seen as a key factor in Mr.
Kloppers being elevated to the chief executive's role.
BHP said it is now focused on cutting costs and wants to simply
its portfolio of assets further.
The company said its revenue in the year to June 30 edged up
0.7% to US$72.23 billion from US$71.74 billion. Stripping out
one-time items, profit for the year was down 21% at US$17.12
billion, slightly ahead of the consensus of analyst forecasts that
had been progressively reduced in recent months.
Mr. Kloppers, who has been at the helm for almost five years,
and the head of the petroleum division earlier this month said they
would forego bonuses this year after BHP announced writedowns
totaling US$3.29 billion combined on its shale gas and nickel
assets.
BHP said that average prices for many of its products knocked
about US$2 billion from its underlying earnings, while higher costs
reduced earnings by a further US$2.7 billion.
Write to Robb M. Stewart at robb.stewart@wsj.com
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