March 28, 2024

BHP Delays $14 Billion Canada Potash Push as Profit Drops

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

Economix Blog: The Missing Construction Workers

While the number of housing starts has surged – nearly doubling in the last two years – employment in residential construction has barely budged. And construction employment tracked down ever so slightly to 5.79 million workers in April, according to the preliminary data.

What gives? Where are the missing construction workers?

Those are questions that economists have been puzzling over for the last year or so, as the housing market has started to normalize, with low inventory and new demand causing prices to rise in markets across the country and builders eagerly breaking ground on new developments from Florida to California.

Over time that should lead to rising employment in the sector, especially given pent-up demand for projects. But not yet. Construction employment is starting to turn up, but from a very low level: There are about as many construction workers now as there were in 1997. And construction employment in the residential sector remains essentially flat, gaining about 2.5 percent in the last year.

There seem to be a few components to the answer. The first is that housing starts tend to tell us where the market for construction workers is going, not where it is right now. So even as starts have surged as builders have begun new projects, the overall number of units under construction remains relatively low – meaning relatively few available jobs. (See Trulia’s chief economist, Jed Kolko, on this point.)

Second, it seems that builders in some markets may be having trouble recruiting skilled workers, as my colleague Catherine Rampell recently reported. That has not yet led to much of a surge in compensation in the sector, as you might expect. But perhaps the businesses are paying workers under the table, or making do with fewer of them, in part by increasing their hours.

Moreover, builders will eventually need to hire employees to work on new projects. (As far as I know, there have not been any great productivity advances in home building in the past few years, and nobody’s outsourcing the work to robots.) That would be a good thing for an economy still desperately in need of jobs, despite the better numbers.

Article source: http://economix.blogs.nytimes.com/2013/05/03/the-missing-construction-workers/?partner=rss&emc=rss

Shell Bets Big on Natural Gas

More than any of its rivals, Royal Dutch Shell, which will report its quarterly results on Thursday, is betting its future on the business of bringing natural gas from remote locations like Qatar to energy-hungry destinations like China and Japan.

And while analysts expect the results to show a sharp decline from last year’s first quarter, in part because of disruptions in its Nigerian gas operations, many experts say Shell may eventually show big benefits from its natural gas emphasis.

Increasingly, to make gas a global commodity, companies supercool it into a liquid form for transport on specialized ships. Shell has already invested about $40 billion in liquefied natural gas, or L.N.G., production plants, storage terminals and related systems, and plans to continue pumping money into that business.

Shell now has about 7 percent of the world L.N.G. business, with ambitions to more than double that share through new projects and acquisitions. Last year, L.N.G. and related businesses earned Shell $9.4 billion of its $25.1 billion in profit.

“We are in the lead, and we want to stay in the lead,” Andrew Brown, Shell’s head of international exploration and production, said in a mid-April interview. Mr. Brown said Shell expected global demand for L.N.G. to grow rapidly in the coming years, doubling by 2025 to about 500 million tons a year, the equivalent of about 4.5 billion barrels of oil, making it by far the fastest-growing fuel.

The main reason for the anticipated growth is that natural gas is abundant. And because of the U.S shale gas boom, it has become relatively cheap — especially in North America, where prices lately have been in the range of $4 per million British thermal units, compared with highs of $13 as recently as 2005. The European spot price is around $10 per million B.T.U.’s, and the Asian price around $15; contract prices, often linked to oil, may be higher.

And because it burns much cleaner than either coal or oil, it will very likely stay in favor because its use can help lower the greenhouse gas emissions that are blamed for causing global warming.

To Mr. Brown’s frustration, not everyone gets the message. That is one reason Shell’s big L.N.G. bet is no sure thing.

The United States has wholeheartedly embraced gas. But Europe, mired in economic doldrums, has turned to coal, which is less expensive. This has driven down demand for gas in the region, which in recent decades had been one of the world’s biggest markets for natural gas via pipelines and L.N.G.

Europe does not have “the right balance” in terms of promoting gas, Mr. Brown said. About 75 percent of Shell’s L.N.G. goes to Asia.

As much as anyone, Mr. Brown is responsible for making Shell a gas broker to the world. Before taking his current job, Mr. Brown presided over more than $20 billion in investments in gargantuan installations for turning the extensive gas deposits in Qatar’s North Field into exports in the form of L.N.G. and liquid fuels like diesel.

To build on its lead, Shell agreed in February to buy the L.N.G. business of the Spanish company Repsol for about $6.7 billion. Some industry analysts considered the price too high. But according to Repsol, Shell had to outbid more than dozen competing offers.

The impact of Shell’s L.N.G. investments on the company’s financial performance will, of course, fluctuate from quarter to quarter. The first-quarter results on Thursday are expected to be hurt by a shutdown at a Nigerian L.N.G. plant caused by sabotage. And yet, Shell’s quarter was probably helped by high L.N.G. prices in Japan, which continues to import large quantities of gas since the Fukushima nuclear meltdown in 2011.

Analysts’ consensus forecast anticipates that Shell will report adjusted net profit of $6 billion for the quarter, an 8 percent gain over the preceding quarter, but an 18 percent decline from a year earlier, according to Peter Hutton of RBC Capital Markets in London.

On Tuesday, one of Shell’s main rivals, BP, reported a first-quarter profit of $4.2 billion after adjusting for inventory changes and one-time items, which handily beat analysts’ forecasts. BP, though, continues to emphasize its oil business.

Over the longer run, being a big player in L.N.G. is likely to help Shell outearn its peers, predicted Martijn Rats, an analyst at Morgan Stanley in London. The huge upfront investments of several billion dollars per gas liquefaction plant might seem prohibitive, Mr. Rats said, but those projects “generate large amounts of operating cash flow over two or three decades.”

Article source: http://www.nytimes.com/2013/05/02/business/energy-environment/02iht-shell02.html?partner=rss&emc=rss