BHP demands efficiencies before expanding Olympic Dam

BHP Billiton says it will consider expanding its Olympic Dam copper and uranium mine in South Australia only after it improves efficiencies and can run the existing operation at full capacity.

Speaking at the Essington Lewis memorial lecture at the University of South Australia BHP Billiton Olympic Dam asset president Darryl Cuzzubbo said BHP had tasked experts from around the world to research all options for a potential expansion.

“We are now applying financial analysis to determine the best possible future options ,” Mr Cuzzubbo said.

“Once we are able to run our existing operation at full capacity, we then and only then earn the right to grow.

“This is not something that we can or should take lightly as it will likely shape the path of Olympic Dam for the rest of this century.”

BHP first shelved plans to expand the mine, 560 kilomteres north-west of Adelaide, in August 2012 following low commodity prices, which are yet to markedly improve.

“From an Olympic Dam perspective, the prices of copper, gold and uranium have dropped 33, 35 and 50 per cent respectively from their 2011 highs to now,” Mr Cuzzubbo said.

“As you can imagine, this has created a very tough situation for our business especially as we have a high fixed-cost infrastructure.”

In BHP's 2014 annual report it said Olympic Dam contributed an underlying earnings before interest and tax of $US34 million.

This was from production of 184.4 kilo tonnes (kt) of copper cathode, 4kt of uranium oxide, 121.3 kilo ounces (koz) of refined gold and 972 koz of refined silver.

Expanding the mine would be a boon to South Australia’s economy, which has suffered due to job losses in the state’s manufacturing industry.

BHP has plans for heap leaching trials that it hopes will help it identify an alternative, less capital intensive process for extracting metals.

Mr Cuzzubbo said efficiency drivers had already allowed BHP to deliver 11 per cent more copper last year at a substantially lower cost, but in other areas of its operation it still had “some way to go” in meeting self-imposed benchmarks.

“It is only reasonable that we do the best with what we already have before we ask for substantial capital for a potential expansion,” he said.

Mr Cuzzubbo said BHP had to be strategic and selectively tactical to remove the bottleneck at the mine, which would require significant funding.

“Any expansion is closely linked to efficiency as it is often the operating cost of an expanded plant that, more than anything else, drives the return on capital,” he said.

“Our immediate challenge is how we self-fund the required investment by being prudent and creative with our capital and engaging our workforce to not only reduce costs but also accelerate the initiatives that will reduce our costs.”

Throughout his speech Mr Cuzzubbo compared the task of economically expanding Olympic Dam to mining leader Essington Lewis’s ability to overcome challenges as he led BHP in becoming a steel maker in the lead up to the second world war.

“We have always understood the value of the prize and believe that as we live up to the legacy of Essington Lewis we will unlock the incredible value that this orebody can deliver.”