Huge outback mine promises to deliver in Olympic proportions
Thursday September 10, 2009
BHP Billiton's proposed Olympic Dam copper/uranium/gold mine expansion in South Australia's outback is set to become the group's most expensive undertaking, with analysts estimating an all-up cost of $US15-20 billion ($A23 billion).But South Australia's version of the economic impact that Western Australia's Gorgon gas project stands to deliver is too far out to resolve growing concerns that BHP has limited growth options in copper, one of its key profit spinners.In a report released yesterday, Morgan Stanley analysts estimate the expansion cost for Olympic Dam at $US15.9 billion €” the lower end of analyst expectations. BHP has yet to provide any guidance on the expansion cost, with a $US6 billion estimate released several years ago now out of date.Morgan Stanley also echoed other analyst concerns that BHP has too few growth options in copper, a metal that is plugged in to the forecast surge in electricity consumption in China and India.It means the growth rate of BHP's copper production will be pedestrian unless it accelerates the development of the Escondida copper expansion in Chile, and/or makes an acquisition of an existing copper producer or an advanced development project.Ironically, BHP let go of most of its copper development opportunities before the 2003 start to the China-led boom in commodity prices. Three of those €” Resolution in the US, Oyu Tolgoi in Mongolia and La Granja in Peru €” were all owned by BHP. Now they they are part of Rio Tinto, with BHP only retaining a junior interest in Resolution.Of the world's 10 biggest undeveloped copper opportunities, BHP is represented in only one (Resolution).It is Olympic Dam that will provide the late-in-the-decade spurt. First production at higher rates would not occur until the second quarter of 2016, assuming approval to proceed next year.Annual capacity at Olympic Dam is now rated at 235,000 tonnes of copper, 4500 tonnes of uranium and 100,000 ounces of gold. Fully expanded, the mine's annual capacity will grow to 750,000 tonnes of copper, 19,000 tonnes of uranium and 800,000 ounces of gold from a combination of the existing underground operation and the new open-cut.To develop the open-cut, BHP will have to remove 410 million tonnes of overburden a year for five years to get to the top of the ore body. In 40 years, it will have created a hole four kilometres long, three kilometres wide and up to a kilometre deep.