In a letter to shareholders as part of an off-market $A5 billion buy-back of its Australia-listed shares, BHP chairman Jac Nasser said the mining giant’s significant organic growth program also included new coking coal projects in Queensland.
Last month BHP also announced plans to acquire Chesapeake Energy Corporation’s interests in the Fayetteville shale project in the US for $US4.75 billion, which Nasser said the company would bankroll from its own cash resources.
BHP currently has 10 projects under development and is forecast to spend $15 billion during the current financial year.
Some analysts have tipped the cost of the RGP6 expansion, which would lift BHP’s output to 240 million tonnes a year of iron ore, could reach $6 billion.
However, BHP has not provided any cost estimates to the market on its as-yet-unapproved expansion plans.
The major also plans to spend a further $570 million expanding the inner harbour of the port at Port Hedland and recently approved a $1.05 billion budget on the Macedon gas development, located offshore WA.
However, in its half-yearly report, BHP said industry-wide cost pressures were being experienced across a broad range of projects, reflecting underlying inflation on raw material and labour costs.
Its petroleum arm has already felt the brunt of cost blow-outs with its share of the Kipper and Turrum projects in the Bass Strait revised upwards to $900 million and $1.35 billion respectively.
“Industry-wide cost pressures are being experienced, with tight labour and raw material markets presenting a challenge for all operators,” the company said.
“BHP is not immune from that trend and reduced underlying earnings before interest and taxes by $521 million in the December 2010 half-year.
“Higher fuel and energy prices (of which BHP Billiton is a net beneficiary), together with increased maintenance, labour and contractor costs, accounted for the majority of the impact and reduced underlying EBIT by $468 million.
“Non-cash items reduced underlying EBIT by a further $92 million and reflected the ongoing delivery of our organic growth program.”
Shares in BHP closed down 36c yesterday to $44.27.