\n\tBy Greg Peel<\/p>\n
\n\tBHP<\/span> Billiton<\/span> ((BHP<\/span>)) is currently reviewing its portfolio of large scale capex<\/span> projects intended to carry the company into the future. Weak global growth and subsequently lower commodities prices in the face of still rising costs has BHP<\/span> winding back the timeline on its spending program. To date, the company's strong cashflow<\/span> earnings net of capex<\/span> plans have brokers forecasting negative earnings growth in FY13<\/span>.<\/p>\n \n\tOne of those plans is to build an outer harbour<\/span> facility at Port Hedland<\/span> in WA for the loading of iron ore into today's increasingly large bulk carriers. The project is expected to cost US$20bn<\/span> and around US$1bn<\/span> of pre-commitment funding has already been approved. However, the JP Morgan analysts believe BHP's<\/span> new president of Iron Ore is likely to favour<\/span> smaller scale, but higher returning-growth, suggesting the outer harbour<\/span> facility may be announced to have been put on hold at BHP's<\/span> upcoming result release on August 22.<\/p>\n \n\tThe planned outer harbour<\/span> facility was to provide 100mtpa<\/span> of additional capacity and was expected to be approved by the end of this year with ramp up targeted for the first quarter 2016. However in June, BHP<\/span> CEO Marius Kloppers<\/span> announced no major projects would be approved before the end of FY13<\/span>. With Jimmy Wilson having replaced Ian Ashby as iron ore chief, JP Morgan believes the focus will now be on optimising<\/span> the inner harbour<\/span> facility before looking to an outer harbour<\/span> option.<\/p>\n \n\tThe Port Hedland<\/span> authority is anticipating an expanded capacity of 495mtpa<\/span> for the inner harbour<\/span> of which BHP<\/span> is allocated 240mtpa<\/span>. But while the facility is based on a 165kt<\/span> ship capacity, the average ship currently passing through the port is much bigger, the analysts note. If a 188kt<\/span> average capacity can be achieved, an additional 40mtpa<\/span> becomes available to BHP<\/span>, the analysts calculate, which will tide the company over. Inner harbour<\/span> optimisation<\/span> offers a lower capital intensity than an outer harbour<\/span> project.<\/p>\n \n\tJP Morgan is no longer factoring in an outer harbour<\/span> project in its valuation model, removing $1ps<\/span> of net present value. The broker's target falls to $41 from $42 and a Neutral rating is retained.<\/p>\n \n\tJP Morgan's recommendations are sector relative, rather than market relative, and the broker has a Buy (Overweight) rating on iron ore rival Rio Tinto ((RIO)). Indeed all eight brokers in the FNArena<\/span> database have Buy ratings on Rio, while only five rate BHP<\/span> a Buy (plus three Holds).<\/p>\n \n\tAs it stands, consensus forecast earnings growth for BHP<\/span> in FY13<\/span> is minus 3.6% compared to plus 19.8% for Rio. The consensus 12-month target for Rio is $84.42 or 49.6% above today's traded price. The target for BHP<\/span> is $39.58 or 21% above, on a range of $37-$41.<\/p>\n