BHP facing the perfect storm?

BHP Billiton Limited (ASX: BHP) is facing major headwinds over delayed multi-billion dollar expansions, shale gas writedowns, the impact of the Minerals Resource Rent Tax or MRRT, the carbon tax and failing investors’ confidence in the CEO, Marius Kloppers.

The company has announced that it hasn’t taken any decisions on its high cost projects and announced that it was unlikely to approve any projects until at least December 2012.

BHP has three major high-cost projects that require board approval to go ahead. The $20 billion expansion of the company’s Olympic Dam project, a $19 billion expansion of Port Hedland Harbour, and an $8 billion Canadian potash project.

The pressure is on the company to approve Olympic Dam before December 15. That’s the deadline for an indenture agreement with the South Australian government, which establishes the royalty payment levels for the project for 45 years. However, the South Australian Premier Jay Weatherill said on Tuesday that the government would be willing to consider an extension of the deadline. Perhaps no surprise, given the amount of revenues that will flow into the state’s coffers, should the project go ahead.

The Australian has today reported that the big miner has also decided to delay the $19 billion expansion of its Port Hedland harbour for two years. The newspaper added that mining contractors in Perth have allegedly begun laying off workers in anticipation of construction delays on the project.

With two mega-projects potentially delayed, one wonders when speculation will turn to the Canadian Potash project.

In further worrying signs for shareholders, there are reports that investors have lost confidence in Marius Kloppers over his five-year reign at BHP, due to failed takeovers and delayed projects. Mr Kloppers has also refused to confirm that he had the chairman’s confidence, dodging the question when speaking to reporters yesterday.

Add in the MRRT, falling commodity prices and the carbon tax and the company finds itself in somewhat of a perfect storm.

Australia’s other big miners, Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group (ASX: FMG) have also announced a slowdown in their expansion, but could further curtail upcoming projects, if commodities prices fall further.

All three companies have seen their share prices drop following the fall in commodity prices. Over the past six months, BHP shares have fallen 15%, Fortescue is down 14.8%, Rio is down 10.7%, compared to the S&P / ASX 200 index (Index: ^AXJO) (ASX: XJO), which is down just 0.1%.

Foolish takeaway

Shareholders will be hoping some of these issues will be cleared up when the company reports its 2012 financial year results later this month, and will be looking for positive updates on BHP’s mega-projects.

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Motley Fool writer/analyst Mike King owns shares in BHP.  The Motley Fool ‘s purpose is to help the world invest, better.  Take Stock  is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  Click here now  to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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