BHP Billiton Expected to Spend $3.5-Billion in Iron Ore Expansion
Australia-based mining company BHP Billiton (ASX:BHP) (NYSE:BHP) is gearing up to increase iron ore production with the help of a $3.5-billion expansion at its Pilbara mines in Western Australia.
According to Business Review Australia, the move will increase the company’s production to an annual capacity of 290 million tons per year, up from the previous target of 270 million tons.
Although it’s not likely iron ore prices will reach $100 a ton again anytime soon, BHP is prepared to take the chance in a “bigger-than-expected” expansion to bring more iron ore into the market.
“We would say it is quite unlikely that we would see prices north of $US100 a ton, so our forecasts are obviously based on something below that,” CEO Andrew Mackenzie said.
Iron ore prices fell to $90.10 on Friday as Chinese steel mills continued to run down iron ore inventory amid low steel prices. According to analysts for Macquarie, a continued lack of buying for the precious metal was possible.
“Mills do report that they plan to increase purchasing activity of both iron ore and coking coal, although whether this happens or not will almost certainly depend on how demand conditions evolve in the coming weeks,” the bank said in a note to clients.
However, because of BHP’s low operating costs ($40/ton), iron ore prices would have to drop farther than anyone is predicting for the expansion not to be a success.
“We have looked at quite big capital costs and so on, but by just sitting back with what we’ve got and making what we’ve got much more productive, we’ve seen our way through to achieving that with minimal capital,” said Mackenzie.
The Australian reported if everything goes according to plan, the Pilbara iron ore expansion will give BHP an extra $5.85 billion of annual revenue.
Along with revealing a 23 percent increase in annual profit last week, the company sent shockwaves across the mining industry last week as it announced a demerger of its non-core assets.
Vale invests $150mn to extend life of Manitoba operations
Vale has announced a $150mn CAD investment to extend current mining activities in Thompson, Manitoba by 10 years while aggressive exploration drilling of known orebodies holds the promise of mining well past 2040.
Global energy transition is boosting the market for nickel
The Thompson Mine Expansion is a two-phase project. The announcement represents Phase 1 and includes critical infrastructure such as new ventilation raises and fans, increased backfill capacity and additional power distribution. The changes are forecast to improve current production by 30%.
“This is the largest single investment we have made in our Thompson operations in the past two decades,” said Mark Travers, Executive Vice-President for Base Metals with Vale. “It is significant news for our employees, for the Thompson community and for the Province of Manitoba.
“The global movement to electric vehicles, renewable energies and carbon reduction has shone a welcome spotlight on nickel – positioning the metal we mine as a key contributor to a greener future and boosting world demand. We are proud that Thompson can be part of that future and part of the low carbon solution.”
Vale continues drilling program at Manitoba
Coupled with today’s announcement, Vale is continuing an extensive drilling program to further define known orebodies and search for new mineralization.
“This $150mn investment is just one part of our ambitious Thompson turnaround story. It is an indicator of our confidence in a long future for the Thompson operations,” added Dino Otranto, Chief Operating Officer for Vale’s North Atlantic Base Metals operations.
“Active collaboration between our design team, technical services, USW Local 6166, and our entire Thompson workforce has delivered a safe, efficient and fit-for-purpose plan that will enable us to extract the Thompson nickel resources for many years to come.”
The Thompson orebody was first discovered in 1956 by Vale (then known as Inco) following the adoption of new exploration technology and the largest exploration program to-date in the company’s history. Mining of the Thompson orebody began in 1961.
“We see the lighting of a path forward to a sustainable and prosperous future for Vale Base Metals in Manitoba,” said Gary Annett, General Manager of Vale’s Manitoba Operations.