Is the mining boom coming to an end?

August 23, 2012

Mining giant BHP Billiton announced that it would postpone or scale back projects valued at more than US$50 billion. The Wall Street Journal reported on this and said that these moves are the clearest signal yet that the global mining boom has run its course.

The most significant cut back by BHP Billiton comes at its Olympic Dam deposit in Australia, the world’s biggest openpit mining operation. BHP’s plans there were derailed by rising construction costs, declining commodity prices and a strong Australian dollar. As such, BHP said it would look for a less costly design for the Australian mine, which had been expected to bring in billions in tax dollars and create thousands of jobs.

BHP also reported a 35 percent decline in profit, hurt by charges on capital investments, according to The Wall Street Journal.

While the cut backs from BHP Billiton might be the most noticeable, they are not alone. Other mining companies are changing their plans as demand from China has cooled with its slowing economy. Prices for many industrial commodities are at multiyear lows. Xstrata has deferred US$1 billion of US$8.2 billion in capital spending planned for this year. And Anglo American said it would delay projects in order to reduce its capital spending for this year by US$500 million to US$5.5 billion.

BHP said that it won't approve big new projects until at least the middle of next year, delaying a proposed potash mine in Canada and plans to expand the Port Hedland iron-ore export facilities in Western Australia. BHP also deferred development of a Queensland, Australia, coal deposit.
Last year, BHP was talking up the prospects of investing US$80 billion to capitalize on Asia's demand for materials such as coal to fire power stations and iron ore to make construction steel. The company also spent more than US$12 billion on acquisitions to gain exposure to U.S. shale gas.

However, the shale-gas rush in the U.S. produced a glut that since has depressed gas prices. That prompted BHP to take an impairment charge against some of the assets, and spurred chief executive Marius Kloppers to opt out of his bonus for this year. That further tarnished his image among some investors after attempts to take over Rio Tinto and Potash Corp. of Saskatchewan Inc. were thwarted during his nearly five-year tenure, The Wall Street Journal reported.

Kloppers said the company will continue to invest in its operations. And volumes in important commodities will continue to rise as capacity is unleashed at a copper mine in Chile, wells in the Gulf of Mexico and coking-coal mines in eastern Australia that had been hit by strikes, he said.
BHP is pushing ahead with 20 projects to which it has already committed US$22.8 billion and is spending close to US$1 billion a month on its iron-ore operations in Australia.

The Olympic Dam project had been seen as a flagship for the company. The deposit is considered the world’s largest source of uranium and one of the biggest copper finds. It also contains gold and silver. BHP acquired the existing mine in 2005 and the company has steadily expanded its landholding around the site.

BHP Billiton’s net fell to US$15.42 billion for the year through June from a record US$23.65 billion in fiscal 2011. The latest figures included charges on Olympic Dam, the shale-gas assets and Australian nickel projects.

Revenue edged up 0.7 percent to US$72.23 billion, while cash flow from operations dropped 19 percent to US$24.38 billion.

BHP forecast that the global economy would stabilize in the first half of next year and then improve, which should boost commodity demand and prices. Growth in fixed-asset investment in China will shore up demand and prices for iron ore, one of the biggest drivers of BHP's earnings, the company said.



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