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Contractors wary

THE proposed $140 billion joint venture of BHP Billiton and Rio Tinto's Pilbara iron operations stands to have a major impact for local contractors.

Announced in June, the controversial JV proposal is expected to deliver $US10 billion in synergies by enabling adjacent mines to be combined into single operations, better use of existing transport infrastructure and greater blending of different ores.

Operationally, however, the JV is likely to reduce the opportunities for contract miners in the Pilbara.

BHP currently uses contract miners at most Pilbara operations, but has publicly committed to switch to a more traditional owner-operator model for the JV. Chief executive Marius Kloppers has also identified safety issues at contractor-operated sites as another factor in the shift.

Consequently, existing contracts will be phased out as they are completed and owner-operator arrangements will be implemented at all new developments.

The impact of the merger on design and construction opportunities will also remain uncertain until mid-2010, when BHP and Rio expect to finalise and implement the JV.

BHP has virtually underwritten the local contracting market in recent months through its RGP4 and RGP5 expansion projects, jointly worth almost $10 billion, that will lift its Pilbara capacity to more than 205 million tonnes per annum by late 2011.

More than $1.1 billion in contracts for RGP5 have been awarded during the past six months, while prefeasibility studies are also ongoing for BHP's RGP6 project to lift output to 240mtpa.

However, planning for subsequent expansions has been slowed until there is more clarity on the JV proposal, which must also overcome fierce opposition from steelmakers and close scrutiny from international competition regulators to proceed.

Most notably, planning has slowed for BHP's $10 billion-plus Quantum project to develop an outer harbour facility at Port Hedland to increase port capacity above 300mtpa.

Emerging iron ore miners fear the outer harbour project may be shelved indefinitely, thereby further limiting port capacity available to new producers at Port Hedland.

Also, Rio has slowed work on its planned expansion to 320mtpa pending the outcome of the JV.

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BHP Billiton (BHP)

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