THE DISTILLERY: BHP battlefield

Jotters pore over the unusually frank speeches of BHP Billiton's bosses and find political barbs, strategic caution and investor signposts.

Under normal circumstances, when BHP Billiton chairman Jacques Nasser and chief executive Marius Kloppers make speeches on the same day its creates some news. With tens of billions of dollars in projects now in question, these are not normal circumstances and Australia’s business commentators are picking through the speeches even more closely than usual. They're finding BHP is becoming more overtly critical of Canberra and can count itself lucky that China didn’t slow after it’d made spending decisions, but can also sleep easy with its decision to switch away from shareholder returns earlier in the boom.

The Australian Financial Review's Jennifer Hewett reflects that BHP has traditionally exerted its influence in Canberra behind the scenes.

"Jac Nasser’s stirring speech to the Institute of Company Directors yesterday effectively signalled the end of that style. Presumably, it’s no longer adequate given the threatening global environment and the domestic results in practice. With its share price getting so badly – pummelled along with other resources stocks, it’s not surprising that the company is looking hard at the risks to growth and commodity prices, and its potential response in the timing of expansion or new resources projects. But Nasser’s address was aimed specifically at what Australia can do to best withstand those sorts of pressures. His blunt assessment is that the government is failing badly in two vital areas within its own control – tax and the industrial relations framework.”

The Age’s Malcolm Maiden noticed a crucial difference in the speeches of Nasser and Kloppers.

"For Australian politicians and union officials, the speeches contain a political barb. Kloppers and Nasser both said that the resources industry had more potential projects than its cash flows could now support. Like other companies BHP needed to choose which projects would proceed, they said, and the group's assessment of what projects offered the best returns embraced not just market metrics, but what they both called ‘political and fiscal stability’. Kloppers left it at that: his speech was tailored for an investor audience. But Nasser went on to say that operating and investment costs in Australia were now among the highest in the world, that increases in mining taxes and royalties would have "repercussions” and that Australia's industrial relations climate had deteriorated (the group is locked into a long battle over pay and conditions with its coalminers in Queensland's Bowen Basin).”

Business Spectator’s Stephen Bartholomeusz says the timing of China’s slowdown is something BHP can be thankful for.

"BHP is fortunate that it has yet to make final investment decisions on a cluster of mega-projects – the Outer Harbour expansion at Port Hedland, the Olympic Dam open-cut expansion and the Jansen potash project in Canada are the big ones – that are scheduled to be made later this year. It is pretty obvious that at least one and probably two of the projects will be deferred unless conditions turn around quickly, and that Rio and other miners will be adopting the same defensive approach until the environment stabilises. There will still be a continuing boom in resource sector investment – there are hundreds of billions of dollars' worth of projects already underway that will have to be completed – but a big dent is now emerging in the pipeline of future projects. The prospective returns from those projects underway or recently completed may not be quite as lucrative as was once envisaged and the odds on the minerals resource rent tax raising anything material have lengthened even further.”

The Australian’s John Durie offers his conclusion on which projects will be delayed.

"What is clear from his presentation is that the next two years are fully committed with $20 billion in spending this year and slightly less next year, so what happens from there is anyone's guess – including, it seems, the BHP board. Iron ore is a volume game, so is high on the list of spending, as is shale oil in the US, but Jansen Potash and Olympic Dam are in the too-hard basket right now. What flows from that is that shareholders can forget about any big hike in dividends outside the notorious progressive dividends policy of steadily increasing payouts, and buybacks will come only from any windfall. The other message being of course not to worry about uncontrolled capex binges because BHP will remain cautious and act only when it has some clue what to do.”

And The Sydney Morning Herald’s Ian Verrender says BHP Billiton was right to shift away from capital returns after the early stages of the mining boom.

"Not to proceed down that path would have been irresponsible. But that doesn't ease the acute hip-pocket pain being felt by shareholders. It was only after the speech, when quizzed by reporters, that Nasser conceded that the company would not be proceeding with plans to spend $80 billion on projects during the next three years. Even though he refused to provide details, that admission leaves open two distinct possibilities. Either Nasser and his chief executive, Marius Kloppers, believe the global economic climate has degenerated to such an extent that earnings will slide substantially and there will be less capital available for investment, or the company has altered its strategy and plans to divert a greater percentage of earnings to shareholder returns.”

The Australian Financial Review’s Matthew Stevens says Nasser is clearly getting comfortable in his position as chairman, while Chanticleer columnist Tony Boyd argues that he didn’t answer the question of how to make BHP valuable to shareholders again. The Australian’s Robin Bromby suggests that now might be the time to switch attention to explorers rather than miners.

Still in matters related to the global economy, The Age’s Eric Johnston looks at what would happen if Greece did decide to exit the euro. The Australian’s Criterion columnist Tim Boreham looks at the sharemarket winners and losers from the Australian dollar.

In company news, The Australian’s Damon Kitney says Fairfax Media chairman Roger Corbett has a secret weapon in persuading billionaire Gina Rinehart away from asking for two board seats – editorial independence. Fairfax’s Insider columnist Ian McIlwraith looks at the unfortunate situation that Rupert Murdoch’s brother-in-law John Calvert-Jones has got himself into.

And finally, The Australian’s Asia-Pacific editor Rowan Callick asks why Indonesia isn’t higher on the agenda of Australian business. After all, it’s big, it’s close and it’s growing at a rate of knots.