Top global miner BHP Billiton may put three mega projects on hold on Wednesday when it is expected to report its first annual profit fall in three years in the face of rising costs and falling commodity prices.
BHP wraps up a torrid earnings season for the world's biggest miners, all battered by weaker prices for iron ore, copper, coal, nickel and aluminum as economic growth in big-buyer China slows to its weakest pace in a decade.
The Anglo-Australian giant has also been hurt by lower natural gas prices and industrial action at its coking coal mines.
Analysts forecast BHP's second-half attributable profit before exceptional items fell 37 per cent from a year earlier to $6.96-billion (U.S.). Reuters calculated the forecast from analysts' expectations that BHP's full-year profit to the end of June fell to $16.9-billion from a year-earlier $21.7-billion.
In BHP's biggest business of iron ore, softening demand growth from China has been particularly painful. The world's biggest iron ore miner, Brazil's Vale, last month reported its worst quarterly earnings in two years.
With sharp falls in commodity markets this year, analysts and investors have looked for signs of future capital spending cuts. Although there has been spending restraint at the fringes, none of the heavyweight miners has yet cut back on core growth projects.
BHP flagged in May it was putting the brakes on an $80-billion plan to expand its operations but has yet to say whether it is actually going to delay three major projects that were due to go to the board for final approval by December, 2012.
The company may reveal more about its intentions for the projects in its earnings comments.
"BHP is highly unlikely to sanction any of its three long lead projects... by the end of calendar year 2012," FW Holst analyst Rob Craigie said in a note ahead of BHP's results.
The three projects – the Outer Harbour iron ore development in Australia, the Olympic Dam copper expansion in Australia and the Jansen potash project in Canada – are widely expected to be held up until the outlook for commodity prices is clearer.
Construction contractors are already getting nervous about an end to the mining construction boom, although they say it should help ease cost pressures on existing projects for workers and materials as demand growth slows.
"I think that we are close to the current peak of construction work," Nick Bowen, managing director of mining services company Macmahon, told Reuters this week.
Cost cutting at operations will also be a key factor under scrutiny, with BHP having recently flagged it may have to cut jobs at its Australian coal mines due to worsening market conditions.
BHP's final dividend will be the key barometer of how the company views its outlook. Holding it at 55 cents would be a bearish signal since the company has a policy never to cut its dividend.
As expected, BHP revealed earlier this month it would book a $2.8-billion writedown on the U.S. shale business it had bought last year and $450-million on its Australian nickel division, which led Chief Executive Marius Kloppers and petroleum head Mike Yeager to forgo their bonuses this year.
A further writedown is on the cards on Wednesday in BHP's alumina assets, analysts say. UBS forecasts the company will take a $1-billion to $2-billion impairment charge.