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BHP Billiton Ltd., the world’s biggest mining company, put approvals for about US$68 billion of projects on hold after second-half profit plunged 58% as metal prices declined and costs rose.
Net income dropped to US$5.5 billion in the six months ended June 30 from US$13.1 billion a year ago, according to Bloomberg calculations that were confirmed by the Melbourne-based company. That beat the US$3.5 billion median estimate of four analysts surveyed by Bloomberg.
BHP doesn’t expect to approve any spending on major projects this fiscal year, including the Olympic Dam expansion, which would have created the world’s largest uranium mine, the company said Wednesday. It joins Rio Tinto Group and Xstrata Plc in booking declining profits amid sluggish global growth.
“Given current investor sentiment towards high-capex, long-dated projects, the move not to approve Olympic Dam and Outer Harbour will be taken positively,” Richard Knights, an analyst at Liberum Capital Ltd., told Bloomberg. “The problem for BHP management is at some point they will have to weigh up the market’s desire for short-term returns and their prerogative as a major mining company to commission long-dated projects.”
BHP, the third-biggest iron ore exporter, fell 1.5% to 1,949.50 pence at 11:32 a.m. in London. The stock dropped 0.3% to close at A$33.16 in Sydney. The company will pay a final dividend of 57 cents a share, up from 55 cents a year ago.
BHP and Xstrata, which this month cut its spending plan for the year by US$1 billion to US$7.2 billion, are among miners reining in spending as prices fall and investors fret about the potential profitability of new operations. BlackRock Inc., the biggest holder of BHP’s Australia-listed shares, had trimmed its holdings because of concerns over spending on shale gas assets and Olympic Dam, it said in March.
“With 20 major projects currently in execution with a combined budget of US$22.8 billion, BHP Billiton is largely committed for the 2013 financial year,” BHP said. “No major project approvals are expected over this timeframe.”
BHP said in May it won’t meet its five-year US$80 billion spending target on new mines and expansions as it combats higher costs and lower prices. This month it said it was studying spending cutbacks across its operations and reviewing its development pipeline of major projects.
The company’s board had been due to decide this year on approving Olympic Dam, an iron-ore port expansion in Western Australia and a potash project in Canada. The three projects may cost a combined US$68 billion to build, according to a May 23 estimate from Deutsche Bank AG. The bank estimated Olympic Dam alone would cost US$33 billion.
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