BHP Billiton Ltd. (BHP), the world’s biggest mining company, will fall short of its $80 billion spending target for building mines and expanding assets over the next five years as it sees commodity prices declining.
“We should pause, take a deep breath and wait and see where the pieces fall around the world,” Jac Nasser, chairman of the Melbourne-based company, told reporters today in Sydney. He declined to say how much spending would be cut.
BHP joins Rio Tinto Group, the third-biggest mining company, in slowing spending as costs rise and prices fall in a weaker global economy. The industry has more projects than cash flows and companies will have to prioritize spending, Nasser said today in an earlier speech.
“The tailwind of high commodity prices has contributed to record growth in the sector,” Nasser said in the speech. “Now we have a period where those tailwinds are moderating and we expect further easing over time.”
BHP declined 4.1 percent to A$32.49 at the close of trading in Sydney, the lowest level since July 2009. Rio fell 3.9 percent to its lowest since October 2009.
Commodity prices have declined 12 percent from this year’s high in February, according to the Standard & Poor’s GSCI Spot Index of 24 raw materials.
“The environment was different” when Chief Executive Officer Marius Kloppers outlined the company’s plans to spend $80 billion on new developments, Nasser told reporters. The price of iron ore, BHP’s biggest revenue earner, has declined 29 percent since Kloppers announced the investment schedule in February 2011. The CEO reaffirmed his commitment to the spending as recently as February.
BHP’s board is due to decide on the development of three major projects by the end of this year, including a port expansion at Port Hedland in Western Australia that may cost $22 billion, Credit Suisse Group AG said in an April 12 report.
It will also decide by the end of the year on an expansion of the Olympic Dam copper mine in Australia, Nasser said today. The mine may cost $27.4 billion, according to an October estimate by Deutsche Bank AG. If approved, building the Olympic Dam would take 11 years with BHP taking a phased approach, the company said in December 2010.
The board will also consider whether to build the Jansen potash mine in Canada’s Saskatchewan province where BHP has invested $1.2 billion of preliminary spending. The mine may start production from 2015, according to BHP’s website.
Mining companies operating in Asia are facing lower cash flows as prices retreat from “stratospheric” levels, credit rating company Standard & Poor’s said in a May 3 report.