BHP Billiton (BHP) needs to get its act together and make a start on its Olympic Dam copper-uranium expansion in Australia, else it will lose its rights to proceed. The project, which costs in the region of $33 billion, must commence by the end of the year, according to the Australian government, else the company will no longer be allowed to continue with its plans.
This is putting a substantial amount of pressure on the BHP board to approve the project as soon as possible, despite the huge decline in commodity prices. This situation immediately causes warning bells to go off in my head. Is a rushed dam approval really what we want anywhere in the world - from a safety perspective?
Whatever the answer to that question may be, the South Australian government has made it abundantly clear that BHP will not receive an extension for the project (unless some sign of construction is seen by the end of the year) and that production needs to start sooner, rather than later. However, this is not in the best interests of BHP. According to Platypus Asset Management portfolio manager Prasad Patkar, "For the amount of capital that they have to outlay, they will need a very high and stable copper and uranium price for a very long time for the board to have the comfort to be able to sign off on a project of this scale".
The company was given approval to begin the expansion late last year. I'm sure it seemed like a good idea at the time. The mine in question produces exponentially more copper and uranium oxide each and every year and it seemed sensible to expand, thereby increasing the mine's production levels even further and consequently increasing the company's revenue.
Unfortunately, things like a slump in the prices of commodities we're experiencing now simply cannot be predicted. In addition, there are no less than 250 environmental conditions that the company has to comply with if it intends to move forward with the expansion. Investors may be wondering why they invested in this market in the first place. Hopefully, they will soon have a final answer from BHP about its final decision about whether to push through with the project. As things stand, however, I feel that the board will not approve the project.
So, what happens next? We will have to wait and see. The expansion may well not be practical at this point in the company's history and the best decision may be to put the expansion at Olympic Dam on hold until further notice. The price of commodities on the world market also requires close monitoring in order to make a safe prediction in this regard.
In other news, BHP is one of the top companies that have signed up with GlobalOre. This is a new company that will soon be launched and that will represent some serious competition for China's first iron ore physical trading platform. Other big names that have signed up are Rio Tinto (RIO) and Vale (VALE). As far as I am concerned involvement in China, one of the fastest growing emerging markets, it something that every sensible stock should be working toward and I see this as a positive step for the company.
AngloGold Ashanti (AU), Xstrata (XSRAF.PK) and Barrick Gold (ABX) are among the mining companies that are being targeted by the Argentinean government in new import laws. In an effort to "boost the trade surplus and foreign currency stocks", the Argentinean government has decided that mining companies need to get prior approval before they can import mining equipment and supplies. The companies may also soon be forced to consider using locally produced equipment and supplies rather than importing those of their own choice. This could disrupt mining activities in the area.
In other news, Barrick Gold, which is in general doing rather well, recently signed a new software license agreement with ARANZ Geo for its Leapfrog Mining geological modeling and project evaluation software system. Essentially, this is technology that significantly improves the exploratory abilities of the company. The technology makes predictions about what will be found a whole lot easier and allows the company to have the best possible understanding of the geology in the area where it would like to mine. I feel that other mining companies could learn from this example.
Fitch Ratings recently had some very good things to say about Goldcorp (GG). This company is one of the leaders in the industry and it's easy to see why. Among other things, it has good liquidity - which allows it to move forward with its spending schemes. The reserves that it controls produce large amount of yields and its mines tend to last for long periods of time without decreases in production. In addition, these reserves are in areas of the world not in danger of suffering the effects of geopolitical unrest, at least not any time soon.
Last, but not least, Freeport-McMoRan (FCX) is experiencing a number of problems at some of its mines. For example, at its Fungurume copper/cobalt mine in the Democratic Republic of Congo, the company is being accused of not delivering on promises that it supposedly made to locals in the area regarding jobs and substantial help in terms of the continuance of their livelihood. The situation between the company and the locals is very tense at present and the bad press that is being generated by the situation is not doing any good for the stock. In addition, any violence that erupts could cause problems for mining operations in the area.
BHP Billiton may be at one of the most pressing moments of its recent past and near future. The results of its decision on the Australia project will no doubt have an effect on its stock and its position to battle its competitors in the market. Tune in close and see what happens at the Olympic Dam, it may just be a make or break choice for the company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.