BHP's decision to postpone approval on $68 billion in projects pushes mining equipment turn down the road

08/22/2012 5:11 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Bad news for BHP Billiton (BHP), of course. Today the company announced that net income for the six months ended on June 30 fell to $5.5 billion from $13.1 billion, a 58% drop, on lower prices for metals and coal and higher costs.

Bad news too for the world’s makers of mining equipment such as Joy Global (JOY) and Caterpillar (CAT). BHP Billiton announced that it had put approval for $68 billion of mining projects on hold and doesn’t expect to approve any spending on major projects this year.

That has taken a bite out of shares of Joy Global—down 0.93% as of noon New York time today—and Caterpillar—down 2.54%. Both stocks had rallied recently—with Joy and Caterpillar up 12.36% and 11.54%, respectively, in the last month as of the close on August 21. But both stocks are still down for the year to date with Joy down 22.29% and Caterpillar down 2.54%.

BHP Billiton joins peers such as Xstrata (XSRAY) in cutting spending plans. Earlier this month Xstrata had cut its spending budget for 2012 by 12.2%.

It’s not that BHP Billiton will spend nothing in the next 12 month. The company has 20 major projects with a capital budget of $22.8 billion committed for that period. It’s just that investors looking for a turnaround in the mining sector—and in prices for everything from coal to iron ore—will have to push the timing of that turnaround further into the future. The price of iron ore, for example, fell to a 32-month low on August 21 as demand from China slackened on a fall in Chinese exports to struggling EuroZone economies.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Joy Global as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

 

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