BHP cans coal expansion

BHP Billiton (ASX: BHP) has cancelled another US$5 billion in plans for new rail and port infrastructure to support its coal mines in Queensland.

Whether that’s a direct effect of the recently announced hike in royalties on coal by the state government is unknown, but was likely to have been a factor in the mining giant’s decision. With coal prices falling 37% since mid July, BHP is reviewing all its operations and new projects in coal – those that don’t make the grade are being cut back or cancelled.

Earlier this year BHP and its partner Mitsubishi cancelled a planned expansion of the Peak Downs coking coal mine, and closed the Norwich Park and Gregory operations. This week it discontinued plans to develop the Red Hill and Saraji East coking coal mine projects, despite BHP paying New Hope Corporation (ASX: NHC) $2.5 billion to buy Saraji East back in 2008.

CEO Marius Kloppers has previously said that BHP intended to build its own coal infrastructure for its Queensland coal business, to make it as efficient as possible, similar to its iron ore operations in the Pilbara, in Western Australia.  The 250 km railway line from Goonyella to Abbot Point, would have made the miner less reliant on QR National (ASX: QRN).

Earlier this year BHP cancelled plans for the US$20 billion expansion of its giant copper and uranium project, Olympic Dam; and a US$20 billion expansion of the outer harbour at Port Hedland, so that it could increase iron ore exports.

Despite the cancellations of such large projects, BHP still expects to spend around US$22 billion on capital expenditure on various projects in the 2013 financial year. Fellow iron ore miner, Rio Tinto Limited (ASX: RIO) is pushing ahead with its plans to ramp up iron ore production to around 353 million tonnes a year, despite prices for iron ore slumping from over US$150 a tonne to around US$100 a tonne currently.

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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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