BHP Billiton Ltd. (BHP), the world’s biggest mining company, will lose the right to proceed with the $33 billion Olympic Dam copper-uranium expansion in Australia if it doesn’t start work by the end of the year, pressuring the board to approve the project as commodity prices decline.
“I will not be granting an extension to BHP,” Tom Koutsantonis, the minister for mining in the South Australian state government, said today in an interview.
BHP said this month it won’t meet a spending target of $80 billion for building mines and expanding assets over the five years through 2015. The Melbourne-based company may seek to delay approving the expansion at Olympic Dam and two other major projects until the second half of next year, according to a May 23 report by Deutsche Bank AG.
Commodity prices have declined 13 percent from this year’s high in February, according to the Standard & Poor’s GSCI Spot Index of 24 raw materials.
“I think BHP will delay the expansion to the extent that they possibly can because the cost pressures are extremely intense,” Prasad Patkar, who helps manage about A$1 billion ($990 million) at Platypus Asset Management Ltd. in Sydney, said by phone. “For the amount of capital that they have to outlay, they will need a very high and stable copper and uranium price for a very long time for the board to have the comfort to be able to sign off on a project of this scale.”
The company won approvals to expand the mine, located 560 kilometers (348 miles) north of the state capital Adelaide, in October 2011 following a six-year assessment process. The cost estimate for the expansion comes from the May 23 Deutsche Bank report as BHP hasn’t given a costing.
“We are in ongoing engagement with the South Australian government” on Olympic Dam, said Antonios Papaspiropoulos, a Melbourne-based spokesman for BHP. “A decision on its future won’t be taken by the board until the end of 2012.”
Expanding Olympic Dam to open pit from an underground mine would require removing 410 million metric tons of earth, or overburden, which may take five years, according to BHP.
“I expect there to be evidence that they’ve begun mining,” said Koutsantonis, referring to mining activity outside of an initial spending plan of $1.2 billion. “I’m talking about the work needed to remove the overburden to reach the ore body.”
The expansion plans would make Olympic Dam the world’s largest uranium mine within 11 years, increasing copper output almost fourfold to 750,000 tons a year, boosting gold production eightfold and uranium by almost fivefold, according to BHP. The company already produces uranium, copper and gold from an existing underground operation.
BHP’s board is expected to decide on building three major projects, including Olympic Dam, by the end of the year. Olympic Dam, the Jansen potash project in Canada and an iron ore port expansion in Western Australia may cost a combined $68 billion, according to Deutsche Bank.
BlackRock Inc. (BLK:US), the world’s biggest asset manager, said in March it has cut its holdings in BHP Billiton following concerns Olympic Dam and shale gas assets may curb returns.
“We’re not going to have anyone come into this state, go through a massive approval process and then sit on an asset,” said Koutsantonis.
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