http://au.finance.yahoo.com/news/bhp-billiton-freezes-major-project-074339651.ht...The world's biggest miner, BHP Billiton, says it is freezing all board-level major project approvals for six months.
The statement by BHP Billiton's chief executive Marius Kloppers reinforces a warning earlier this month by the miner's chairman Jacques Nasser that the company would scale back its $80 billion investment plans.
The message was delivered directly to its major customer, China, through a major Chinese news agency.
"You should not expect in the next six months any new major approval of projects," he told Caixin Media.
"The economics of some of these projects is changed.
I think for the next two years, 18 months perhaps, will we just wait and see how things develop." The company says his comments are not a change of policy, but BHP Billiton had previously planned to make a decision on major expansions such as South Australia's Olympic Dam mine by the middle of this year.
A board decision on that expansion must be made by December 15, otherwise the South Australian Government's approval expires and BHP will have to head back to the negotiating table.
South Australia's Mineral Resources and Energy Minister Tom Koutsantonis says the deadline for approval is non-negotiable.
"BHP Billiton knew at the time of the signing of the indenture that the approvals came with a time limit," Mr Koutsantonis told the ABC in a statement.
"To date, I have not received any request for an extension and we are proceeding in the expectation that the board will meet and approve this project before the end of this year." While Mr Kloppers' self-imposed six-month moratorium on expansion decisions ends just before the December deadline, Minelife 's senior resource analyst Gavin Wendt says the Olympic Dam expansion is in doubt.
"It's still 50-50.
I've had my doubts, it's taken a long time for the [feasibility] study to be completed," Mr Wendt said.
"If BHP was really dead keen on getting the project into production I think the whole process could have been expedited.
"I don't think BHP really wants to be flooding the market over the next five years or so with new supply [of copper, gold and uranium]." He says that is because the future of many commodity prices is too uncertain to guarantee a good return.
"It's effectively sending out the sort of message to the market that hey, at the end of the day, we can turn supply on and off," Mr Wendt said.
"And if we don't see a strong pricing environment for our commodities where we can generate a reasonable margin, then we'll leave the stuff in the ground." Platypus Asset Management portfolio manager Prasad Patkar says rising costs are also deterring expansion.
"The pressure on costs has become so intense for the large mining projects and it comes at a time when commodity prices are starting to flatten at best and coming back a bit," Mr Wendt explained.
That has made boards unwilling to commit to new projects until the economic situation becomes more clear.
Mr Patkar says a lack of skilled labour is largely to blame for the cost issues.
"A lot of projects are being sanctioned around the world and around Australia at a time when the supply of skilled labour just can't catch up in the short term," he said.
Skilled labour shortages are a problem for miners around the world, but Paul Gray, the principal iron ore analyst for global resources consultancy Wood Mackenzie, told Radio National Breakfast that cost increases have been especially large in Australia.
"In the mining sector they [wages] roughly doubled since 2005.
Australian wage rates in the mining sector are amongst the highest in the world now," he said.
However, while costs are rising across the mining sector, the quality of Australia's iron ore deposits means that it still remains among the lowest cost producers.
"Operating costs may be somewhere around $40 to $50 a tonne, and for China small scale, high cost private mines now has operating costs above $120 a tonne," Mr Gray explained.
He says that cost differential will limit iron ore price declines, as unprofitable Chinese mines halt production when prices fall too low.
"That should provide some underlying support at levels pretty close to where we are today - it may be $10 or so below current levels," he added.
Mr Patkar says that makes BHP's iron ore plans, such as an expansion of Port Headland's harbour, the least likely to be canned.
"I think the BHP iron ore expansion is the safest of the three large projects that they are considering," he concluded.
Mr Wendt says the long-term outlook for many commodities is good, and BHP Billiton has reacted to short-term investor concerns that it is spending too much on expanding production.
"They have been criticised in some aspects of the market, but particularly by one of their major shareholders BlackRock, for spending too much money on long-term development projects," he observed.
"They seem to be reacting to the negative near-term sentiment that's around in the financial markets at the present time."
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