BHP Billiton expansion plans at risk on falling iron ore prices

BHP Billiton Ltd's plans of spending billions on expansion of its mining operations in Western Australia's Pilbara region may come unstuck as iron ore prices continue to slide downhill. In a staff memo, Jimmy Wilson, the recently appointed president of the Anglo-Australian company's iron-ore division, said rising costs and falling prices had prompted a review of "the sequence and pace" of growth projects.

Though mining companies have been feeling price pressures from copper and thermal coal, iron ore had been expected to be resilient enough to let  BHP and others go ahead with plans to boost capacity of what is their prime driver of earnings.

Wilson's note, dwelt on challenges while it affirmed the company's belief in the long-term attractiveness of iron ore and the company's commitment to projects under way.

The Wall Street Journal cited a BHP spokeswoman, as saying the note made no reference to approval for an outer harbour to boost export capacity at Port Hedland which already counts as the world's second-largest iron-ore port, after the terminals at São Luís in Brazil. The spokeswoman added, no decision had been made on the project, which according to analysts' estimate could cost nearly $20 billion to complete.

The harbour project was among three likely to cost at least $10 billion about which BHP's board was to decide towards the end of the year. However, speculation has been rising that at least one big project would be deferred after executives started reconsidering ambitious spending plans and the company increased its focus on cutting costs.

The benchmark spot price for iron ore has fallen a third over the past year to a nearly two-and-a-half-year low of $115.20 a metric ton, and the price which remains strong historically still offers a healthy margin for the world's biggest miners, including BHP and Rio Tinto, which had been able to keep costs in check.