MELBOURNE, May 17 (Reuters) - BHP Billiton, the world's biggest miner, is
likely to delay signing off on at least two mega projects after its chairman put the brakes on an $80 billion plan to grow the company's iron ore, copper and energy operations, analysts say.
Slumping commodity prices and escalating costs have squeezed cash flows, pushing BHP to join rival Rio Tinto in reconsidering the pace of their long-term expansion in countries such as Australia and Canada.
'The major message is: 'We can't approve anything right now. We don't have a spare cent to spend,'' UBS analyst Glyn Lawcock said.
In BHP's bleakest outlook yet, Chairman Jacques Nasser said on Wednesday the company expects commodity markets to deteriorate further and that investors have lost confidence in the longer-term health of the global economy.
Nasser stopped short of announcing a spending cut, but said BHP was re-thinking its expansion plans 'everyday' and that the company won't spend $80 billion over five years as outlined by Chief Executive Marius Kloppers in 2011.
The miner was planning to finance the expansion with its cash flows, which analysts forecast may fall 20 percent to around $24 billion in the year ending June.
BHP has long maintained that it is committed to keeping its single-A credit rating, another constraint on spending. As of December, the company had net debt of $21.5 billion.
Three projects are vulnerable: the Outer Harbour development at Port Hedland in Western Australia crucial to its iron ore growth, the expansion of the Olympic Dam copper and uranium mine in South Australia, and its Jansen potash project in Canada.
BHP has said it plans to take all three projects to the board later this year and has not backed away from that yet.
Boart Longyear, the world's largest exploration drilling services contractor, said it has yet to see any pullback from its major customers, which include BHP.
'Our bookings have remained constant over the last 12 to 18 months,' Chief Executive Craig Kipp told Reuters, but said he expected the global environment to remain unstable for some time.
'We're being very cautious, keeping a conservative balance sheet,' he said, echoing the view of major miners.
IRON ORE EXPANSION
Analysts and investors expect BHP to proceed with the Outer Harbour development as the company's iron ore operations are the most profitable in its suite.
'Iron ore's not vulnerable because they're making very, very good margins on that,' said Prasad Patkar, a portfolio manager at Platypus Asset Management in Sydney, which owns BHP shares.
The Outer Harbour project is crucial if BHP was to double iron ore production to 440 million tonnes a year.
BHP has stuck to its bullish view on China's iron ore demand in all its presentations. But this week, Kloppers said the window of opportunity for miners to cash in on Chinese iron ore demand growth would only last until 2025.
Given that it will take about three years to build the Outer Harbour, if BHP starts construction in 2013, it will have about a nine-year window to reap the benefits of a project that analysts estimate will cost more than $20 billion.
Any delay to that will narrow the period for generating returns, and if BHP's forecast for Chinese demand turns out to be overly rosy, that window will be even narrower.
'It's difficult for them to delay the Outer Harbour materially,' Lawcock said.
If the company did not go ahead with the Outer Harbour expansion, UBS said in a note that its valuation on the company would drop by $15 billion, or A$3 per share.
BHP shares closed at A$32.77 in Sydney on Thursday, just off a near three-year low hit on Wednesday.
OLYMPIC DAM DELAY
BHP's plan to get into the potash business by building the $5 billion Jansen mine in Canada may be put on hold and the $10 billion initial expansion of Olympic Dam may be stretched out over a longer period, analysts and investors said.
But no one expects the projects to face the axe.
'They'll just limit how much they spend each year,' said CLSA analyst Hayden Bairstow.
BHP would have to seek an extension from the South Australian state government if it fails to commit to the Olympic Dam project by December, or else it would lose its approvals for the project.
The state remained optimistic on Thursday that BHP would go ahead with the project, where it has already committed to spend $1.2 billion to prepare for the expansion.
The project is designed to increase copper output more than fourfold to 750,000 tonnes a year.
'We have always understood this is a big decision for them,' state premier Jay Weatherill said in an e-mailed statement to Reuters. 'We are in regular contact with BHP and those discussions remain positive.'
The government would be hard-pressed to deny BHP an extension for starting the development, given that no one else would be in a better position to take over the project, expected to cost as much as $30 billion to fully develop.
'If the economics are not working for BHP, it's unlikely to work for Rio, Anglo or Xstrata,' said Patkar, referring to BHP's main copper rivals.
BHP wants to expand into potash for agriculture eventually, but sees that as a longer-term prospect as places like China and India move away from rapid industrial expansion to consumer-driven growth.
Analysts said any delays on Olympic Dam or Jansen would not affect their forecasts for the company as they have not included those projects in their numbers yet.
(Reporting by Sonali Paul; Additional reporting by James Regan; Editing by Ryan Woo) Keywords: BHPBILLITON PROJECTS/
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