BHP Billiton dims lights on SA growth

Marius Kloppers, the Tukkies chemistry graduate who is chief executive of the world's largest mining group, was indirect when responding to a question on BHP Billiton's SA future at the year-end results presentation in London.

Asked about plans for the group's aluminium smelters in SA and Mozambique, he replied: "We will not deploy capital in those businesses. There have been major changes in smelting technology over the past 10 years."

Though not mentioned by Kloppers, the local smelters that process Australian alumina were brought on stream long ago based on long-term contracts with Eskom to deliver power at competitive prices.

SA, which has no aluminium ore of its own, would essentially be earning foreign exchange by exporting electricity.

With Eskom now scrambling to finance the making good of more than a decade of lackadaisical management of power supplies by ramping up its prices, analysts and commentators understand why BHP Billiton will not be looking to SA for growth in this sector.

The Melbourne-registered group has largely completed its SA development programmes at the Douglas-Middelburg thermal coal colliery and at its manganese mining and smelting facilities. There's nothing new on the drawing boards.

The SA operations are essentially the legacy of the group's earlier and partial SA incarnation.

Elsewhere around the globe, growth prospects are different, and their funding and development will be throughout the economic cycle.

This is even though Kloppers expressed reservations about the ability of governments in developed economies to sustain the vigorous pump priming that has so far deflected threats of economic depression. He was also cautious on Chinese growth prospects as Beijing tightens the financial screws to deflate a property bubble.

The year to end-June delivered another record performance. Group revenue rose by 5% to $52.8-billion from fiscal 2009's $50.2-billion, contributing to a 65% increase in operating profit to £20-billion from $12.2-billion.

And with the group's rock-solid balance sheet, sound cash flow and extensive funding commitments from its financiers, Kloppers has no reservations about BHP Billiton's capacity to grow organically and, if need be, to diversify through acquisitions.

Gold remains a no-no. But at present BHP Billiton is engaged in a hostile $40-billion bid for Potash Corporation of Saskatchewan, Canada's leading producer of fertiliser products.

The bid represents a fundamental diversification, even if it becomes a rough-and-tumble over the price.

According to mining analysts, BHP Billiton's financial strength gave the group an edge over possible counter-bidders.

In Australia, the group and its peers are engaged in a raucous fight with Canberra over proposed royalty tax increases.

In the past year, the group authorised $2.9-billion capital commitments for organic growth projects across the globe, taking the end-June outstanding total commitment to $10-billion.