BHP must adjust, hints Rio

Rio managing director Tom Albanese did not name BHP in a hard-hitting speech in Montreal but it was clear who the message was directed at as, among the mining majors, BHP stands out with its "business as usual" statements.

"Those that don't review programs will stand out in not announcing any adjustments, but to think that anyone is immune from this near-term market outlook is simply not credible," Mr Albanese said.

"This is not an environment to be wearing rose-coloured glasses. I believe that Rio Tinto's position of providing clear and open guidance is the best policy in today's environment."

Rio recently said it could curtail aluminium production and would be reviewing the pace of its capital expenditure on new projects in light of the global economic slowdown.

But BHP has argued it is in a unique position, because of its financial strength and oil earnings, to keep investing through the cycle. BHP managing director Marius Kloppers has also told antitrust regulators that the takeover bid is about delivering more product, more quickly. Production cuts or supply constraints are not what the European Commission's antitrust arm would want to be hearing ahead of its January 15 decision on BHP's clearance to proceed.

As it is, BHP yesterday confirmed it would not proceed with a bauxite project in Suriname and was planning to quit its alumina refinery joint venture in the country with the Alcoa/Alumina AWAC joint venture.

The decision was based on an analysis that the risk/reward balance of the project did not stack up.

Rio's focus on BHP not budging on its expansion and investment plans is with the group's new Ravensthorpe nickel mine in Western Australia.

Its focus has legitimacy because BHP's takeover bid is scrip-only, on a 3.4-for-1 basis. BHP hosted a touring party of 33 analysts at the loss-making operation yesterday.

In a slide presentation lodged with the exchange, BHP confirmed that the 50,000 tonne-a-year project was likely to take until mid-2010 to reach nameplate capacity. At current annualised production rates of about 16,000 tonnes of contained nickel, the operation would be struggling under the weight of depressed nickel prices, higher input costs and problems with scaling in pipework.

That has raised questions about whether in a non-Rio bid environment, BHP might have moved to mothball the $US2.2 billion project.

The reporter owns BHP shares.

KEY POINTS

The feud between BHP and its target, Rio, continued yesterday.

BHP confirmed it would not proceed with a bauxite project in Suriname.