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BHP Billiton Ltd. has put major project decisions on hold as the world’s biggest miner adapts to slumping demand for commodities and reins in soaring production costs.
Reporting the first annual fall in profit in three years on Wednesday, BHP said it delayed the $20-billion (U.S.) open-pit expansion of Olympic Dam, a huge copper and uranium project in southern Australia.
The Anglo-Australian mining giant also said no other major project approvals are expected in the current fiscal year, including for Jansen, the $12-billion Saskatchewan potash project slated to become the world’s largest producer of the crop nutrient.
Mining companies are showing the bruises of slowing global commodities demand as key consumer China buys less coal, copper, iron ore and other commodities amid softening economic growth. Profits are also being squeezed as costs to build and operate mines rise at their fastest rate in a decade, especially for labour and energy.
In July, Brazilian iron ore producer Vale, the world’s largest, reported its worst quarterly earnings in two years. Late last month Toronto-based Barrick Gold Corp., the world’s largest gold miner, raised cost estimates for a key gold project in the southern Andes by as much as 60 per cent, putting it in the $8-billion range.
“Our biggest responsibility as a resource company, beyond the price line, is to take costs out of the business,” BHP chief executive officer Marius Kloppers said in a telephone interview from London. “Because basically, what is happening is costs still are rising.”
The Olympic Dam expansion would create one of the world’s largest new copper mines, with output of 750,000 tonnes of the red metal per year. It would also supply 20 per cent of the world’s uranium.
The decision to delay development comes in the wake of a 25-per-cent drop in copper prices over the past year, to about $3.46 per pound.
“As we finalized all the details of the project in the context of current market conditions … it became clear that the right decision for the company and its shareholders was to continue studies to develop a less capital intensive option to replace the underground mine at Olympic Dam,” BHP said.
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