BHP Invests in Harbor, Divests RBM

Recently, BHP Billiton Ltd (BHP - Analyst Report) announced the approval of US$917 million (BHP Billiton share US$779 million) in pre-commitment funding for the construction of a outer harbor facility associated with its Western Australia Iron Ore operations, as an approval for initial work in Port Hedland.

The outer harbor with capacity of 100 million tons per year is a pivotal investment toward providing infrastructure for world class resource base development in Pilbara. The project has an embedded option to expand by a further 100 million tons per year and is expected to be reviewed for full approval in the fourth quarter of calendar year 2012.

The first phase of the Outer Harbor Development would include the proposed construction of a four kilometer jetty, a four-berth wharf, 32 kilometers of dredged departure channel and landside infrastructure, including stockyards and a rail spur. The first half of calendar year 2016 is when the project is expected to start-up.

The funds approved for initial work has been projected to finance the project feasibility studies and procurement of long lead time items as well. Dredging works subject to necessary regulatory approvals are anticipated to start alongside engineering studies for mine and rail expansions for expanded port capacity.

In a separate story, BHP Billiton reported to have exercised an option to sell its 37% non-operated interest in Richards Bay Minerals (RBM) to Rio Tinto; thereby exiting the titanium minerals industry. BHP Billiton held a 37% equity stake in RBM, a South African mineral sands mining and smelting operation and the leading producer of chloride titanium feedstock. The other equity partners included Rio Tinto (37%), Black Economic Empowerment (BEE) parties (24%) as well as employees (2%).

Way back in 2009, as part of the restructuring of RBM, BHP Billiton and Rio Tinto plc. (RIO - Analyst Report) concluded a put option agreement that made provision for BHP Billiton to sell its interest in RBM to Rio Tinto pursuant to an agreed valuation process. Completion of the sale by BHP is now conditional upon the fulfillment of customary regulatory approvals with the final consideration, which will be determined according to the agreed valuation process.

However, BHP Billiton will continue to operate its Southern African energy coal, aluminium and manganese businesses.

BHP Billiton is one of the world’s largest diversified resource companies with operations spanning over several continents. It operates in metals and mineral exploration, production and processing, oil and gas exploration and development, and steel production and merchandising. The company contests directly with its peers, such as Alcoa. Inc (AA), Vale S.A (VALE).

In the present scenario, a slower global growth rate, alongside the prolonged effects of European crisis and dwindling U.S. economy cloud over the demand for the company’s products. We suspect a dampening revenue growth for the coming quarters under such circumstance.

BHP has a Zacks #3 Rank, which translates into a short-term Hold rating (1-3 months).