BHP Billiton, the world's biggest miner, plans to pour $80bn (£49bn) into expansions over the next five years rather than chase ambitious takeovers, after nearly doubling first-half profits to a record on booming demand for iron ore and copper.
The Anglo-Australian company, which is cash rich, also said it would more than double its share buyback to $10bn, to be completed this year.
"The biggest surprise is the commitment to spend $80bn over the next five years," said James Bruce, portfolio manager at Perpetual Investments, one of BHP's top 10 Australian shareholders.
"We think this demonstrates the challenges that the industry is having satisfying rising demand, while replacing declining production from mature operations," he said.
Spurred by strong demand from China and India, BHP and its main competitors Rio Tinto and Xstrata plan to spend more than $110bn on expansion projects over the next five years. In 2011, the companies will target more iron ore and coal capacity in Western Australia and more copper capacity in Mongolia, Chile and Peru.
BHP Chief Executive Marius Kloppers, speaking after the miner announced net profit for the July-December period of $10.7bn, said the firm's acquisition sights were on very large assets. But because there were not many available, the preference was to spend on expansions, he said.
Deals were getting too hard to pull off, Kloppers added, referring to three big deals BHP had to ditch over the past three years, including its $39bn bid for top global fertiliser maker Potash Corp last year.
"In addition, where we currently stand in the commodity price cycle probably has increased price expectations for those assets," Kloppers told analysts.
"Hence, our focus and some of my peers with other companies ... is to emphasise that as one looks at a buy versus build equation, the clear opportunity for us is to continue to invest money in our organic portfolio."