Johannesburg — BHP Billiton planned to spend about $400m on extending the life of its Douglas-Middelburg energy coal operation, the company said yesterday.

The project, which would start production in the second half of next year, was one of seven new growth projects approved by BHP Billiton's board, of which five were major projects.

The project is still at feasibility stage, but a BHP Billiton spokesman said the project would create new jobs.

The group's current project pipeline included 25 projects in execution or feasibility stage with a total value of $14,4bn, CEO Chip Goodyear said.

The group also announced a $2bn share buyback programme which will take place over the next 18 months. This would take place in two stages, the first being an immediate off-market buyback of A$1,5bn (about $1,1bn) of shares on the Australian Stock Exchange at a discount of at least 8% to the average trading price of its shares in the five days up to the closing date. The remainder would be on-market purchases, probably of BHP Billiton plc shares, it said.

The share buyback was announced at the same time that BHP Billiton declared an interim dividend of $0,17,5c a share for the period to December, 29,6% higher than the same period last year.

Goodyear told analysts and media that the group's strong cash flows had enabled it to return cash to shareholders and the significant increase in the dividend reflected its view of BHP Billiton's performance and the market over the next four to five years. He sad the group intended to implement a progressive dividend policy.

In the six months to December BHP Billiton grew revenue 19,5% to $18,2bn. Underlying earnings before interest and tax (ebit) rose 43% to $6,7bn but there was a $795m increase in costs, which reflected an 8,2% increase excluding inflation and exchange rate movements, said chief financial officer Chris Lynch.

The biggest single factor affecting costs was a $175m increase in raw materials, fuel and energy prices, however there were also increases in depreciation, because of the commissioning of new operations, as well as in contractor costs and maintenance, as almost all the group's operations were running close to capacity.

The group's energy coal operations showed a 30% decline in underlying ebit to $205m, mainly because of higher unit costs at all operations.

Costs at Ingwe Coal rose because of higher depreciation, reflecting changes in the economic lives of certain operations and restructuring costs. Export prices were lower than a year ago. Ingwe Coal's production fell to 12,94-million tons in the December quarter from 14,5-million tons in September.

A group spokesman said the Douglas-Middelburg Optimisation Project was a brownfields thermal coal project near Witbank that would combine the resources from the adjacent reserves of Douglas Colliery and Middelburg Mine, both of which were joint ventures with Xstrata. The project would use the lower-strip ratio areas available at Douglas to replace mined-out areas and high-strip ratio areas at Middelburg Mine.

Underground operations and the adjacent process facilities at Douglas Colliery, which are nearing the end of their lives, would be closed. A new coal processing facility would replace the current facility and existing opencast equipment would replace the underground mine.