BHP outlines $9.5 billion expansion plans in iron ore, coal

By Victoria Thieberger

MELBOURNE (Reuters) – BHP Billiton (BLT.L: Quote, Profile, Research) (BHP.AX: Quote, Profile, Research) has approved $9.5 billion of capital investment to expand its Australian iron ore and coal mining operations, showing that planned mining and carbon taxes were not impeding its growth plans.

The world’s biggest miner has decided to expand its own operations and infrastructure rather than chase ambitious takeovers, after three failed takeover bids, as it scrambles to meet rising demand from Asia.

The investments announced for its Pilbara iron ore, Bowen Basin coal and Hunter Valley projects mark the first details the global miner has given of a planned $80 billion in investments over five years.

“This is putting meat on the bones with regards to timing, actual tones and the amount of capex,” said Constellation Capital Management portfolio manager Peter Chilton.

“Rio has done the same, trying to get more out of their existing assets. It’s not like making a big acquisition, these are all things they have control over and manage already,” he said.

Analysts have noted BHP’s average annual spend over the next five years was not much bigger than rival Rio Tinto’s (RIO.AX: Quote, Profile, Research) plans for 2011 and 2012.

BHP said the investment would develop port capacity and reduce bottlenecks so that the port and rail systems could operate at full capacity, as mine production continued to grow.

The announcements came just a day after Australian mining companies won a concession over a plan to tax their profits at 30 percent, with the government agreeing to repay current royalties the miners pay to state governments.

BHP ferrous and coal chief Marcus Randolph said the concession had been expected, and the profits tax on iron ore and coal mines had long been factored in the miner’s plans.

“We reached a framework agreement with the government quite a while back and our assumption was that agreement was going to be respected. So we continue to operate and invest on that premise,” Randolph told a media briefing.

CARBON TAX

He said that BHP has also factored in a planned carbon tax into its analysis for several years, and such a tax would not make a big difference to these projects as they were not major users of energy.

The Australian government has announced plans to price pollution with the introduction of a tax on carbon from mid-2012, sparking protests from Rio, Woodside Petroleum (WPL.AX: Quote, Profile, Research) and other resource firms.

BHP’s shares were down 0.2 percent at A$44.63 in early trade, against a firmer broader market (.AXJO: Quote, Profile, Research).

REDUCING BOTTLENECKS

The top global miner said it would invest $6.6 billion in a total investment of $7.4 billion to continue production growth in the company’s western Australian iron ore operations, to bring capacity to in excess of 220 million tones per annum.

Investment will include the development of the Jimblebar mine, rail links and additional berths and ship loaders at its Port Hedland site.

The company is the world’s third-largest iron ore miner behind Rio Tinto and top producer Brazil’s Vale (VALE5.SA: Quote, Profile, Research).

BHP said it had also approved three key metallurgical coal projects at its Bowen Basin site in Queensland.

BHP will put in $2.5 billion of the total $5 billion investment, which will see the new Daunia mine developed, its Broadmeadow mine’s life extended by 21 years and the stage three expansion of its Hay Point coal terminal.

“Increased demand for seaborne thermal coal in India and East Asia provides an opportunity for us to accelerate growth,” Randolph said.

BHP said in a third statement it had approved a $400 million investment to expand Hunter Valley Energy Coal in New South Wales with a view to increasing production.

The three announcements are the first in the company’s planned $80 billion expansion plans announced last month, when it posted a near doubling of first-half profits to $10.7 billion.

“In all three of these businesses we have large, high-quality resource bases that are close to existing infrastructure and our customers. This combination means we are the logical supplier to expand as fast as we reasonably can,” the company said.

BHP has ditched three major deals in the past three years, including its $39 billion bid for top global fertilizer maker Potash Corp (POT.TO: Quote, Profile, Research) last year, mainly on regulatory concerns.

(Additional reporting by Neil Maidment In LONDON; Editing by David Holmes/Ed Davies)

BHP outlines $9.5 billion expansion plans in iron ore, coal