1st Dec 2015 11:24
LONDON (Alliance News) - BHP Billiton PLC Tuesday said its copper business will gain momentum over the next two years leading to higher production and lower costs across all of its major copper assets, as the mining major still has a positive outlook on the long-term market despite near-term oversupply issues.
BHP's President of its copper business, Daniel Malchuk, said he plans on lowering BHP's copper unit costs to support strong margin "even at today's prices" whilst also increasing production.
Malchuk plans to lower BHP's copper unit costs to USD1.08 per pound of copper in the 2017 financial year and said he aims to grow group copper production to 1.7 million tonnes per year "at very low cost".
To put that into context, BHP received an average price of USD2.78 per pound of copper in the financial year ended June 30, which had fallen from USD3.22 per pound a year earlier - demonstrating the steep drop in copper prices.
In the financial year ended June 30, BHP produced 1.7 million tonnes of copper but production has slowed since then. In the first quarter of the current financial year, copper production totalled 377,000 tonnes and BHP said production for the full year would be around 1.5 million tonnes.
"We see a number of factors creating the conditions for a significant supply deficit by the end of the decade. Grade decline, falling investment across the sector, the lack of greenfield projects and challenges accessing sustainable power and water are all likely to constrain industry supply. Meanwhile we expect robust demand from China and non-Organisation for Economic Co-Operation and Development countries to add to the deficit," said Malchuk.
"This strong recovery will be supported by our differentiated water and power solutions in Chile which will provide us with a significant competitive advantage," he added.
The company's copper portfolio is comprised of large, long life assets with BHP holding the largest copper resource in the industry.
At the Escondida mine in Chile, BHP said it will not be required to make any "major investment" to sustain the project's capacity to produce 1.2 million tonnes per year until 2026. Malchuk said he is expecting Escondida to "generate strong free cashflow through the cycle".
BHP said Escondida is set to produce around 940,000 tonnes of copper in the current financial year, but also warned grades are expected to fall.
At the Spence project, also in Chile, BHP said unit costs are expected to fall by around 10% to 87.0 cents per pound of copper before the end of the 2017 financial year.
In southern Australia, BHP said unit costs at the Olympic Dam mine will fall 48% before the end of the 2017 financial year to around USD1.0 per pound of copper.
"Low cost debottlenecking projects will release latent capacity, supporting sustainable production of approximately 200,000 tonnes per annum at both Olympic Dam and Spence from the 2016 financial year," said Malchuk.
"We are also pursuing further growth opportunities which offer attractive returns. The Spence Growth Option has advanced to the feasibility stage with the potential for first production in the 2020 financial year. And we continue to create staged optionality for substantial long-term growth at Olympic Dam. These opportunities will enable us to bring on production at a time that coincides with an expected price recovery," said Malchuk.
BHP shares were up 2.5% to 816.20 pence per share on Tuesday morning.
By Joshua Warner; [email protected]; @JoshAlliance
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
BHP Billiton PLC