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BHP mega-projects back on the drawing board

Last year global mining behemoth, BHP Billiton (ASX: BHP) announced a freeze on all new mega-projects, as well as postponing several, but several could be approved as soon as next year.

The $20 billion expansion of the giant copper, uranium, gold and silver mine Olympic Dam, in South Australia was put on hold as the company tries to find cheaper ways of extracting the valuable material. It’s unlikely that Olympic Dam will be given the go ahead anytime soon, unless commodities prices rally hard.

The Jansen potash project in Canada’s Saskatchewan region, which is expected to cost more than US$10 billion, could be one of the first mega-projects approved by the board. Speaking at a Bloomberg conference in Sydney on Wednesday, BHP’s CFO Graham Kerr indicated that Jansen may be one of the first approved, stating it will probably come to the board next financial year.

Mr Kerr said potash was the one commodity that could rise to join iron ire, coal, petroleum and copper as BHP’s top-tier growth divisions. Potash is generally used in fertilisers and the expectation that the world’s food supply needs to be significantly expanded, means fertiliser could be in big demand.

The Scarborough floating LNG project in conjunction with ExxonMobil could also be approved late next year. While estimated costs are not yet know, Shell’s floating LNG Prelude project is expected to cost around $12 billion.

While the mega-projects may be back, BHP is also looking to cut costs. The resource giant recently cancelled a contract with Leighton Holdings (ASX: LEI) in favour of a cheaper contractor, and has been selling off non-core and underperforming assets. Rio Tinto Limited (ASX: RIO) has also been looking to cut costs, and has put its stake in several coal mines up for sale as well as some of its US assets.

The Foolish bottom line

BHP, Rio, and junior iron ore miner Fortescue Metals Group (ASX: FMG) will be cheering a surge in the iron ore price overnight to more than US$140 a tonne. Whether the price will stay at these levels remains to be seen, but it will mean the miners have more cash to allocate to the larger projects.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, 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.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in BHP and Leightons.

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