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BHP Delays $14 Billion Canada Potash Push as Profit Drops

August 20, 2013 by

CEO Andrew Mackenzie outlined the low-risk course as he handed down his first results, reporting a 15 percent drop in half-year profit before one-offs, which missed forecasts largely due to Australian mining tax adjustments and other non-operational items.

BHP and Glencore Xstrata wrapped up the results season for the world’s big five miners, with BHP holding up slightly better than its peers as it stepped up output of iron ore, copper, coal and oil and slashed $2.7 billion in costs in the face of sliding commodity prices.

Major miners have come under pressure to rein in spending, sell off underperforming assets and tackle debt after years of rampant spending on new mines and acquisitions as commodity prices soared.

Reflecting the austerity drive, BHP said it plans to invest $2.6 billion over the next four years digging shafts at the Jansen potash project, delaying production at least until 2020 from its original 2015 target, while inviting offers for stakes in the mine.

“The whole basis of the strategy that we’re being clear about today is that we want to retain complete flexibility to enter the market at a timing which we think is right to maximise returns for our shareholders,” Mackenzie told reporters.

BHP put more than $40 billion worth of new projects on ice a year ago to combat costs that had grown out of control over the previous decade as miners raced to feed booming Chinese demand.

Mackenzie reiterated that BHP remains confident in China’s long-term growth prospects, as 250 million people move into cities and the country rebalances its economy toward consumption-led growth.

“In the short to medium term, I think the signs are reasonably positive that they’ll hold to their forecast for 7-8 percent annual growth,” he said.

He outlined a more aggressive cut in capital and exploration spending than recently flagged, with spending to fall 26 percent to $16.2 billion in the 2014 financial year.

Attributable profit excluding one-offs fell to $6.12 billion for the six months to June from $7.18 billion a year ago. That was well below analysts’ forecasts of $7.16 billion, according to Thomson Reuters I/B/E/S.

BHP increased its final dividend by 2 cents to 59 cents, just short of analysts’ forecasts at 60 cents.

BHP’s shares fell 3.2 percent in early London trade, underperforming a 0.8 percent fall in the FTSE 100 index.

“We believe that the market may be surprised that the group is pushing ahead with its Jansen potash project in Canada,” Investec said in a morning note in London.

POTASH PLANS

BHP has long planned to break into the potash industry, targeting a lucrative new business that has been controlled by two cartels, as developing countries look to grow more food over the next few decades.

It has already invested $1.2 billion in Jansen and the timing of its entry has been closely watched by the world’s major producers, led by Potash Corp of Saskatchewan, which BHP tried to take over in 2010.

Its $39 billion bid was blocked by Canada on fears that potash prices and royalties would drop as BHP planned to split from the North American cartel. Now Russia’s Uralkali has given potash producers a taste of what could happen as it recently quit the Belarusian Potash Co cartel.

Mackenzie said once Jansen’s shafts and infrastructure are in place, the mine would be about three years away from production, but the company would decide on when to begin producing based on the market and its ability to fund further development.

BHP believes the project will generate returns well above the company’s average returns over many decades, he said.

“As long as we get the timing right, we’re not overly aggressive, we think those returns are there,” Mackenzie said.

(Reporting by Sonali Paul; Editing by Richard Pullin)

Article source: http://www.nytimes.com/reuters/2013/08/20/business/20reuters-bhpbilliton-earnings.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Dilma Rousseff and Brazil Face Stiff Economic Test

October 8, 2011 by Leave a Comment

Coming off a year in which it recorded its highest growth in a quarter century, Brazil is faced with rising inflation, an overvalued currency and an industrial sector losing competitiveness to cheap Chinese imports.

But Ms. Rousseff’s promising efforts to fix those problems could be undermined in the coming months as the government embarks on one of its biggest spending sprees in decades.

The leaders of the United States and Europe, struggling to right their listing economies, would count themselves lucky to have problems like Brazil’s. Its economy — driven by soaring prices for commodities, robust Chinese demand for raw materials and a domestic consumption boom spurred on by expanding credit — grew 7.5 percent last year, its highest rate since 1986.

“Like other emerging countries, Brazil has thus far been less affected by the global crisis,” Ms. Rousseff, an economist, said at the United Nations last month. “But we know that our capacity to resist is not unlimited.”

Her strategy so far has been bold. Predicting that the global economy will not improve this year, Brazil’s Central Bank has slashed interest rates, making a risky bet that already high inflation would not soar further. That move, aimed at encouraging growth and reducing the value of the currency, was paired with measures to protect Brazil’s industries from a flood of Asian imports.

That approach has shown early signs of success. The stubbornly high Brazilian real began losing value to the dollar last month, reaching its lowest point since 2008 two weeks ago before recovering somewhat last week.

The shift has been front-page news in Brazil, dampening a buoyancy among Brazilians who felt richer than ever. Even as the overvalued currency slowed industrial production, it fueled consumer spending at home and abroad at a blistering pace.

The average per capita purchases by Brazilians in the United States grew 250 percent between 2003 and 2010. Only the Japanese and the British spend more in the United States than Brazilians, figures from the United States Commerce Department show. The foreign spending, which diverts money that could support Brazilian industry, has alarmed government officials here, who have tried to slow the pace of consumption by imposing restrictions on credit card purchases.

But government spending represents the bigger threat.

Next year, the government will be obligated to meet tens of billions of dollars in promised payments for social welfare programs, minimum wage increases and infrastructure projects for its twin billing on the global stage, the 2014 World Cup and 2016 Olympic Games in Rio de Janeiro.

A 14.7 percent increase in the minimum wage is scheduled to take effect in 2012 at a cost of $13 billion, new low-income housing subsidies will cost $6 billion, and investments for the sporting events are expected to cost at least $4.5 billion, said Luiz Schymura, director of the Brazilian Economic Institute at the Getulio Vargas Foundation in Rio de Janeiro.

Since her inauguration in January, Ms. Rousseff has shown a willingness to take a red pen to fiscal spending. Her government approved $28 billion in budget cuts, privatized airports — a move considered long overdue by economists and many policy makers — and stood up to unions demanding even higher wage increases.

But standing up to the minimum wage or the World Cup may be politically impossible.

“For all her good intentions, the political pressures on her will be enormous,” Dr. Schymura said.

The surge in spending, accompanied by lower interest rates, could produce a cycle of higher inflation, economists fear. Whether the new policies will be enough to revitalize Brazil’s industrial sector remains to be seen. The economy’s growth has slowed this year to about 3.5 percent, economists say, about half that of last year. And the consumption boom is slowing. Housing, grocery and retail stores are all reporting reduced sales, said Alfredo Coutiño, director for Latin America at Moody’s Analytics.

Article source: http://www.nytimes.com/2011/10/09/world/americas/dilma-rousseff-and-brazil-face-stiff-economic-test.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Australia Proposes Carbon Trading Plan, Again

July 10, 2011 by Leave a Comment

SYDNEY — Prime Minister Julia Gillard of Australia announced a plan on Sunday that would tax the carbon dioxide emissions of the country’s 500 worst polluters and create the second-biggest emissions trading program in the world, after the European Union’s.

The plan is projected to cut 159 million tons of carbon dioxide from the atmosphere by 2020, the government said. In 2010, Australia produced 577 million tons of carbon emissions, according to the Department of Climate Change.

For the 500 companies — which would include mining giants with operations in Australia like BHP Billiton, Rio Tinto and Xstrata — the government has set a price of 23 Australian dollars, or $24.70, for each ton of carbon dioxide emitted starting July 1 of next year, rising 2.5 percent annually before shifting in 2015 to a market-driven trading program.

A similar proposal by Ms. Gillard’s predecessor, Kevin Rudd, was largely blamed for having led to his political downfall. Ms. Gillard argued, however, that Australia — one of the world’s largest polluters, per capita — could no longer ignore its global responsibilities.

“Scientific evidence has confirmed our planet is warming,” she said. “And after years of debate and deliberation, most Australians agree the time to act is now.

“Australians want to do the right thing by the environment. We are a confident, creative nation that’s up to the challenges of tackling climate change.”

Australia has been able to weather the global financial crisis better than most developed economies primarily because of Chinese demand for its natural resources, particularly coal and iron ore.

Critics of the emissions reduction plan have argued that putting a price on pollution would cripple Australia’s manufacturing and export industries, a point they were quick to make Sunday.

The opposition Liberal Party, which has opposed an emissions trading program under its leader, Tony Abbott, criticized the announcement on its Web site, arguing that the cost would be passed on to Australian families.

“Julia Gillard has betrayed the Australian people,” the Liberals said. “The carbon tax is not revenue neutral — another Labor broken promise. This means a bigger deficit this year, higher debt, more taxes, smaller forecast surpluses in the future and greater pressure on interest rates.”

The Minerals Council of Australia, an influential mining industry group, also criticized the plan. “With no other nation implementing an economywide carbon tax, this is a dangerous experiment with the Australian economy,” it said.

Qantas, the Australian national airline, joined the criticism, saying ticket prices would have to rise because of the plan. “While we are still modeling the cost impact, at 23 Australian dollars per ton, there will be some effect on passengers through higher domestic fares,” it said.

But Tim Jordan, a senior analyst at Deutsche Bank in Sydney, dismissed the bulk of those concerns as driven by political, not financial, orthodoxy.

He called the program a “solid start to reducing emissions,” but said the tremendous concessions given under the plan proved that, if anything, the government listened to businesses’ complaints.

“There’s a lot of extra spending in the form of targeted grant programs and specific funding for particular industries,” he said. “Almost every sector that’s complained about the impact of a carbon price has received some kind of new fund.”

The government’s Jobs and Competitiveness Program has set aside 9.2 billion dollars to shield high-polluting industries during the first three years of the plan.

The most emissions-intensive industries — aluminum smelting, flat-glass making, steel manufacturing, zinc smelting and most pulp and paper manufacturing — would initially receive free permits representing 94.5 percent of each industry’s average carbon costs. The permits will not be tradable for the first three years.

Industries that pollute less, including some plastics and chemical manufacturing, would be eligible for free permits to cover 66 percent of the industry average, while liquefied natural gas would receive an effective assistance rate of 50 percent.

John Connor, chief executive of the Climate Institute, an independent research group, praised the proposal and said he hoped it would lead not only to a brighter environmental future, but also to a break in the increasing acrimony surrounding Australian politics.

Article source: http://feeds.nytimes.com/click.phdo?i=6867d8be582ae9ce51175c2fd0f7c944

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Factories Slow Their Output Growth in China

May 2, 2011 by Leave a Comment

BEIJING — Chinese manufacturing growth slowed in April, a survey showed Sunday, suggesting that the government’s monetary tightening efforts had weighed on the economy more heavily than expected.

The official purchasing managers’ index for China fell to 52.9 in April from 53.4 in March, well shy of market forecasts of an increase to 54. Readings higher than 50 indicate expansion, lower than 50 signify contraction.

The survey, which is designed to provide a snapshot of conditions in the vast Chinese manufacturing sector, was largely in line with a separate purchasing mangers’ index sponsored by HSBC that was published Friday.

With inflation running at the fastest rate in nearly three years, China has taken a series of policy actions to rein in prices, raising interest rates and banks’ required reserves multiple times, ordering banks to lend less and speeding up the pace of currency appreciation.

The official data on Sunday showed that those steps had at least partially hit the mark. A subindex measuring input prices fell to 66.2 in April, a seven-month low, from 68.3 in March.

But the survey also flashed worrying signals for the global economy, which has come to rely increasingly on Chinese demand as a source of growth as the United States, Europe and Japan continue struggling to recover from the financial crisis.

“Over all, the P.M.I. shows there is still a possibility that the Chinese economy may slow down, especially as falling demand growth leads to adjustments in inventories, increasing the possibility of slowing economic growth,” said Zhang Liqun, a government researcher.

The subindex measuring new orders weakened to an eight-month low of 53.8 in April from 55.2 in March. Much of that drop was driven by slower growth in export orders. The subindex for those orders dipped to 51.3 from 52.5.

“The fall may show that export growth will continue to slow down,” Mr. Zhang said in a comment on behalf of the China Federation of Logistics and Purchasing, which compiles the official index.

Despite Beijing’s sustained tightening campaign over the past half year, economists polled by Reuters still say they expect the Chinese economy to expand at nearly a double-digit pace this year. They forecast that it will grow at a rate of 9.5 percent in 2011 after a rate of 10.3 percent last year. In a measure of that robust momentum, it was the 26th consecutive month that the official index had stood above the threshold of 50.

The World Bank said Thursday that it was too early for China to halt its tightening as it raised its inflation forecast in a quarterly review of the economy.

Stubborn price pressures have fueled market talk that Beijing could let the renminbi rise at a faster clip or even take more drastic action by pushing through a large revaluation of the currency.

The government has in the past consistently ruled out a one-time revaluation, saying there were no grounds for any major shift in exchange rate policy. Yet it has demonstrated its appetite for a gradually stronger renminbi in recent weeks by guiding it to a succession of record highs against a sluggish dollar.

Investors are on guard for the next round of Chinese monetary tightening. The central bank has raised interest rates four times since October, and economists polled by Reuters expect another increase over the next two months.

Article source: http://www.nytimes.com/2011/05/02/business/global/02yuan.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,