Matt Chambers | January 22, 2009
BHP Billiton has finally caved in to the destructive forces of the global economic crisis.
It has announced plans to axe 6000 workers and cut projects, production and expansions, wiping $US2.8 billion from its first-half profit.
In an emphatic and somewhat delayed reaction to the global slowdown, BHP detailed a broad response, which included moves to close the unprofitable Ravensthorpe laterite nickel mine in Western Australia, cut coking coal output from Queensland mines, defer expansions at the massive Escondida copper mine in Chile and scale back work on its huge Olympic Dam expansion project in South Australia.
About 3400 worker and contractor jobs will be chopped from BHP's Australian operations, boosting the total number of mining job cuts flagged locally since July to more than 9000.
Yesterday was the first time BHP acknowledged the effects of the global turmoil since abandoning a $135 billion hostile bid for Rio Tinto in late November.
"What we're seeing today is really unprecedented in terms of economic circumstances," BHP chief financial officer Alex Vanselow said. "We saw the response from many governments in terms of their ... stimulus, but we believe that for the medium term there will continue to be uncertainty and we need really to be aligned with that," he said.
Analysts were little surprised by BHP's announcement, given Rio Tinto, Anglo American, Vale and Xstrata had all already announced similar measures.
"BHP is clearly not bullet-proof," said Pengana Capital analyst Tim Schroeders.
"It's not a disaster, everyone's suffering from the same ills and BHP is not immune, despite its balance sheet strength."
BHP shares closed 29c lower at $28.66 yesterday after falling to $27.85 after the announcement.
BHP has avoided the huge debt levels that forced Rio to axe 14,000 jobs worldwide, commit to slashing capital spending by more than $US5 billion and push ahead with asset sales.
"It is very important to stress that we act on (economic) information as opposed to reacting to an internal crisis," Mr Vanselow said, in a veiled swipe at Rio.
Mr Vanselow said the $US2.2 billion Ravensthorpe mine and plant was a disappointment, "one we got wrong". BHP said the value of Ravensthorpe and most of that at the associated Yabulu nickel plant in Queensland would be written off completely.
BHP said it would take an additional $US1.2 billion charge on the write-down, adding to a $US2.1 billion impairment charge announced in November.
Another $US400 million hit in the second half brings total write-downs on the hapless project to $US3.7 billion. The mine was officially opened in May and produced 14,000 tonnes of nickel last year, spending much of its operating life with nickel prices at or below its breakeven price of $US5-$US8 a pound.
"The closure of Ravensthorpe is welcome, but it raises some big questions about project deliveries and executions and BHP's process for evaluation," Perpetual analyst James Bruce said.
The Ravensthorpe closure will see 1450 jobs lost there and 350 at Yabulu, with another 100 employees and 200 contractors going at the Mt Keith nickel operation.
BHP's fourth-quarter nickel production of 50,200 tonnes was up 15 per cent on the previous quarter, which was affected by the Kalgoorlie smelter rebuild.
About 1100 jobs would be cut from Queensland coking coal mines and 200 people working on the Olympic Dam expansion would be axed, Mr Vanselow said.
BHP also said falling copper prices would mean a $US1.3 billion ($2 billion) hit to second-half earnings in the form of adjusted pricing, while the inability to deliver copper from Escondida, where it has hit low grades, into forward contracts would cost $US333 million.
Pengana's Mr Schroeders said the write-downs would probably wipe 10 per cent from consensus earnings for first-half profit.
BHP said it would also close the Pinto Valley copper mine in the US, resulting in the loss of 550 jobs, while scrapping expansion at Escondida would contribute to 2000 lost jobs in Chile.
BHP's second-quarter copper output of 308,000 tonnes was down 11 per cent from last year but equal to that of the previous quarter.
BHP's petroleum production was down 5 per cent.
