BHP Billiton and Rio Tinto Send Conflicting Signs on Investments

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Researched by Industrial Info Resources (Perth, Australia)--While the majority of the world's developed economies continue to struggle in the aftermath of the global financial crisis, which many commentators believe continues today, the mining industry has continued to flourish, especially in Australia. With record commodity prices, particularly for iron ore, coal and gold, the world's biggest miners, including BHP Billiton (NYSE:BHP) (Melbourne, Australia) and Rio Tinto Limited (NYSE:RIO) (Melbourne), have continued to invest billions of dollars to grow their production at break neck speed.

IIR is tracking close to $130 billion worth of active projects from just these two companies, globally, predominantly in the iron-ore and coal sectors. Over the past few months, however, a number of signs have emerged that seem to indicate that the investment boom may have hit a peak and could begin to slow.

With the economic turmoil in Europe seemingly building towards a climax, the United States struggling to recover at any more than a snail's pace, and China's economy showing signs of weakness, many companies are beginning to adopt a "wait and see" attitude toward their investments. Coupled with lower resource demand resulting in reducing commodity prices, it is understandable that the likes of BHP Billiton and Rio Tinto would begin to act more cautiously with their investment decisions.

Last month, BHP Billiton chairman Jac Nasser announced that the company would not meet its projected $80 billion spending target over the next five years, citing the decrease in commodity prices and global economic uncertainty as the contributing factors. BHP Billiton CEO Marius Kloppers followed up on his chairman's comments a few days later.

"You should not expect, in the next six months, any new major approval of projects," he said. "The economics of some of these projects has changed. I think for the next two years--18 months, perhaps--we will just wait and see how things develop."

BHP was expected to approve three of their major projects by the end of 2012, including the Jansen potash project in Saskatchewan, Canada; the Outer Harbour iron-ore export terminal development in Western Australia; and the Olympic Dam uranium mine expansion in South Australia. Analysts now believe that at least one of these projects will be delayed significantly.

It is not all doom and gloom from BHP, though, with the recent approval of the $840 million Appin Mine in New South Wales. Work to expand the existing coal preparation plant had already been undertaken, and now BHP has approved the new Longwall mine that will supply the raw coal to the upgrade plant.

While hinting, over the past 6 months, at the possibility of slowing down its current rapid rate of growth, Rio Tinto has continued to push ahead regardless with the recent approval of $4.2 billion worth of expenditures to progress multiple projects in Australia and continue development of the giant Simandou iron-ore project in Guinea. Rio Tinto remains cautious, however, with CEO, Tom Albanese stating, "We are mindful of short-term uncertainties, and remain fully committed to a balanced approach to investment"

So it seems that, while continuing their push to increase production, both Rio Tinto and BHP Billiton are keeping a close eye on developments in the global markets, particularly Europe and China.

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Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.