MINING FINANCE / INVESTMENT

BHP Billiton moves to ease investor worries over mega project spend

The world's largest miner has moved to reassure investors fretting over its spending on "mega projects", saying they will be approved in a sequence that maximises value, reduces risk and balances short- and long-term returns.

LONDON (Reuters)  - 

Miner BHP Billiton moved to reassure investors fretting over its spending on "mega projects", promising discipline and potential non-core asset sales in one of the sector's clearest efforts to address market worries over the cost of growth.

BHP, the world's largest miner, has said it will "live within its means", but went further on Wednesday to soothe concerns, as investors across the sector fret over the prospects of flattening demand for some commodities while the sector's organic growth pipeline totals some $180 billion.

Alberto Calderon, BHP's chief executive of aluminium, nickel and corporate development, said in a presentation the company had "substantial flexibility" to sequence investments - stagger their progress - and would match spending to cash flows.

Laying out BHP's plan, he said projects would be "be approved in a sequence that maximises value, reduces risk and balances short- and long-term returns".

Calderon said BHP was committed to a progressive dividend, but gave little hope to investors expecting more discipline on major projects could mean a fresh share buyback.

LARGE-SCALE FOCUS

Calderon did, however, signal the miner could sell off more non-core operations, a stance mirrored across the sector as the major players focus on simple, large-scale operations.

"Businesses must earn their right to remain in the portfolio," Calderon said in the presentation.

BHP has said it could sell its Canadian diamond mine, EKATI, and is selling its stake in Richards Bay Minerals, a South African titanium minerals producer, to Rio Tinto.

BHP's four major organic growth projects - the Olympic Dam expansion and the Outer Harbour iron ore project in Australia, U.S. shale gas growth and the Jansen potash project in Canada - will require more than $120 billion of capex over the next 15 years but only increase returns from 2023, according to Deutsche Bank estimates.

Three of these - Olympic Dam, Outer Harbour and Jansen -- are expected to be taken to the board for approval in 2012.

Analysts at Liberum in London said the presentation marked the "first clear attempt by a major mining house to address investor concerns over capital allocation".

"We feel one of the major reasons for the sector underperformance thus far in 2011 has been fears over capital discipline, as free cash flow yields across the sector remain sub-5 percent at a time of extremely healthy margins in copper, coal and iron ore," Liberum said.

"BHP's tacit admission that it is listening to shareholders should prove very positive for the shares and the broader sector."

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