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Kevin Naughton

June 6, 2012

GLOBAL financial services giant JPMorgan is the latest company to throw doubts over BHP Billiton’s Olympic Dam copper and gold expansion project.

JPMorgan’s recently recruited and well-connected mining analyst Lyndon Fagan has suggested to investors that the $20-25 billion expansion project could be on the back burner for at least three to four years.

Fagan, a former Royal Bank of Scotland analyst, joined JP Morgan last month as an executive director to cover BHP Billiton, Rio Tinto, Fortescue Metals Group as well as Alumina and OZ Minerals for the investment house which holds more than $2.3 trillion in assets.

The Australian newspaper reported today that Fagan’s latest assessment of BHP’s position ranked the expansion proposal as the least attractive of its major projects.

“Olympic Dam may not happen,” Fagan’s report said.

“Of all the major projects in the growth pipeline for BHP and Rio Tinto, the Olympic Dam expansion has the least attractive risk-return trade-off.”

The Australian says Fagan would “not be surprised if BHP delayed the first stage of Olympic Dam by three to four years to strengthen its balance sheet and focus on returns to shareholders.

“If this decision was communicated to the market, we would view this discipline as a net positive,” he said.

The Fagan report follows similar concerns expressed by 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,” Patkar told Bloomberg last month.

Deutsche Bank and Citi have also forecast a delay to the project.

Analysts have interpreted the comments of chief executive Marius Kloppers last month in Miami where he told major investors there would be no substantial spending on new projects until at least June next year.

Similar comments by BHP chairman Jacques Nasser in China have sent a chill through the corridors of the South Australian government after last week’s State Budget factored in the expansion in its jobs growth forecasts.

The government’s Mineral Resources Minister Tom Koutsantonis initially took a hard line on extending government approvals for the project, but has since said he would “consider” any requests.

Under the current Indenture agreement legislated by the parliament last year, BHP has until mid-December to start work on the expansion.

http://www.indaily.com.au/?iid=63869&sr=0#folio=6

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