BHP Billiton slimming down to become lowest-cost iron ore producer
BHP Billiton has announced plans to cut capital spending and operating costs for iron ore, following the company’s demerger of South 32. The strategy aims to make BHP the lowest-cost iron ore mining company in the world.
"The iron ore and metallurgical coal markets are currently well supplied and we do not expect to invest significantly more in these businesses at this time," BHP Billiton Chief Executive Officer Andrew Mackenzie said. "Instead, our capital will be focused on the commodities we believe will have attractive supply fundamentals."
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The iron ore baron said it would cut capital and exploration expenditure to $9 billion in the 2016 financial year, from $12.6 billion in 2015. BHP also said it would reduce iron ore unit costs at its Western Australia operations.
"The potential benefits are substantial. We expect to cut unit costs at Western Australia Iron Ore by 21% to $16 per ton during the 2016 financial year,” said Mackenzie.
BHP’s adversary (or partner-in-crime), Rio Tinto, is expected to lower their cost per ton to $17 this year. The two miners, along with Vale, have been criticized in recent months for saturating the iron ore market.
Fortescue Metals Group chairman Andrew Forrest has launched an all-out war on BHP and Rio Tinto, saying: “When multinationals pursue business strategies which flood the market in a last-man-standing race to the bottom, we don’t have free markets. Australians own the iron ore.
The company recently defended itself, saying its approach was rational and that it stopped major investments in new capacity four years ago.
"What we're doing very clearly is we're operating our enterprise in a very economically rational way," said Alan Chirgwin, iron ore marketing vice president.
"We took action, so it wasn't just words. In 2011, that's the last time our board approved billions of dollars of additional investment in expansion."
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Speaking to The Australian Financial Review earlier this week, Mackenzie rejected the idea they were losing the public relations battle against Fortescue Metals Group.
"I think, on the whole, that there is a core in Australia that is very committed to free trade and free markets," Mackenzie said. "If you were to look at the way pricing has moved in almost every commodity recently, they've all had similar properties - oil, gas, agricultural commodities, [and] other mining commodities. And in most cases, the lowest-cost suppliers are the ones that continue producing, and the highest-cost suppliers, if there has to be some give, are the ones that come out of the market or reduce their production.”
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.