BHP Billiton Profit Drops; Olympic Dam Study Extended



Declining commodity prices and a changing economic picture prompted BHP Billiton to delay advancement of a massive,
$30-billion expansion project at the company’s Olympic Dam mining and processing complex (pictured here) in
South Australia. (Photo courtesy BHP Billiton)
Lower commodity prices and higher costs of production were major contributors to a 34.8% fall in BHP Billiton’s attributa-ble profit in its financial year ending June 30, 2012, down to $15.4 billion from $23.6 billion a year earlier. Reporting on August 22, 2012, the com-pany noted that attributable profit for the year included a number of exceptional items: an impairment of $1.8 billion for the Fayetteville (United States) dry gas assets acquired from Chesapeake Energy in March 2011; an impairment of $355 million for its Nickel West (Australia) assets; and a $342-million charge for the suspension or early closure of operations and the change in status of specific pro-jects, which included an impairment of the Olympic Dam expansion project (Australia).

The company is investigating an alter-native, less capital-intensive design for its huge open-pit Olympic Dam expan-sion project in South Australia, including possible inclusion of new technologies to substantially improve the economics of the project. As a result, it will not be ready to approve the project before the December 15, 2012, deadline in its indenture agreement with the govern-ment of South Australia.

Capital cost of the proposed project as currently designed has been estimat-ed at about $30 billion. This design includes a new open-pit mine that would eventually consume the existing under-ground mine, with potential to increase production from 180,000 mt/y to 750,000 mt/y of refined copper, plus associated uranium oxide, gold and sil-ver; expansion of the existing smelter and construction of new concentrator and hydrometallurgical plants to process the additional ore; construction of a waste rock storage facility; construction of a new tailings storage facility; and major infrastructure projects.

BHP Billiton CEO Marius Kloppers said current market conditions, including subdued commodity prices and higher capital costs, led to the decision to extend the study period for the Olympic Dam expansion. “As we finalized all the details of the project in the context of current market conditions, our strategy, and capital management priorities, it became clear that the right decision for the company and its shareholders was to continue studies to develop a less-capi-tal-intensive option to replace the under-ground mine at Olympic Dam.”

BHP Billiton currently has 20 major projects in execution, with a combined budget of $22.8 billion for its current 2012-2013 financial year. The majority of these projects are scheduled to deliver first production before the end of the its 2015 financial year. The company does not expect to approve any major projects during its current financial year.

While the past financial year was eco-nomically challenging, BHP Billiton con-tinued to report strong production across most of its operations. Its West Australia iron ore operations, in particular, set a 12th consecutive annual production record, and annual production records were also set at another nine operations.

Regarding commodity prices, the BHP Billiton year-end statement said, “In the short term, we expect volatility in commodity markets to persist as tempo-rary weakness in the manufacturing and construction sectors across all key mar-kets is expected to weigh on market sen-timent. However, in the medium term we expect supportive economic policy and a broad growth bias, particularly in China, to lead to measured improvement in the external environment.”

BHP Billiton expects growth in fixed-asset investment in China over this time-frame to support demand for steel-mak-ing raw materials and iron ore prices specifically, and the company sees the long-term dynamics for copper as being particularly positive. Structural operating and capital cost pressures associated with rising strip ratios and declining ore grades at many copper mines suggest that a relatively steep copper cost curve should be maintained. “Furthermore, the need to attract substantial new capacity into the market every year, if supply is to keep pace with demand, should provide long-term support for the copper price.”


As featured in Womp 2012 Vol 09 - www.womp-int.com