Bhp Billiton (NYSE:BHP)
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2 Years : From Dec 2011 to Dec 2013
BHP Billiton Ltd. (BHP) and Rio Tinto PLC (RIO), two of the world's biggest mining companies, Tuesday laid out plans to invest more than US$4 billion beefing up their copper output.
Most of the money will be invested in the Escondida mining operation southeast of the city of Antofagasta in Chile, and BHP also plans to resume operations at its idled Pinto Valley mine in Arizona by the end of the year.
BHP said it has approved investing US$2.6 billion in two projects that will underpin higher production at Escondida over the next decade, plus US$195 million to restart Pinto Valley, which was halted in early 2009 during the global financial crisis. Rio separately said it will invest US$1.4 billion in Escondida, funded through its share of cash flow from its 30% stake in the operation.
Mining companies continue to invest heavily in key metals and minerals they forecast will remain in demand in China and other urbanizing countries. BHP last week said it expected copper and iron ore markets to remain supported by "compelling supply-demand fundamentals," despite worries among copper traders over slowing economic growth in China, which consumes about one-third of global annual production.
"While readily anticipated and incorporated in our modelling, the [Escondida] project approval is still a confirmation of the rebound pathway at BHP Billiton's flagship copper asset," analysts at Macquarie said in a research note to clients. "The structural Chinese growth dynamic remains a powerful driver of, and partial insulating factor for, sustained height and duration in broader commodity prices over the next few years."
Ongoing work at Escondida and a recovery in ore grades is expected to help the Escondida operation produce more than 1.3 million metric tons in the 2015 financial year, while Pinto Valley will have an annual capacity of 60,000 tons of copper concentrate, BHP said.
The company in a statement said a concentrator at Escondida will be replaced with a new 152,000 ton-per-day plant that will allow access to higher-grade ore under the existing facilities. The project will cost the owners US$3.8 billion, with commissioning of the plant set for the first half of 2015.
A further US$721 million will be spent on a new leaching pad and mineral handling system that will maintain oxide leaching capacity at current levels, the Melbourne-based company said. BHP is the operator of Escondida and holds a 57.5% stake.
Further exploration and drilling has increased the mineral resources estimate for Escondida 17% and the ore reserve by 25%, the company said.
"The success of our brownfield exploration program suggests there are sufficient resources at Escondida to sustain production at current levels for more than a century," said Peter Beaven, president of BHP's base metals division.
Beaven said resuming mining in Arizona will add further production to the company's base metals portfolio. BHP expects the project will create about 650 new jobs, and there is the potential for an extension of current estimated reserves.
Production at Escondida was dented last year by strikes and lower grades, and BHP and Rio have said output is expected to improve significantly from 2013 as work in the main pit allows access to higher grade ore.
Chief Executive Marius Kloppers told investors following the release of the company's half-year results last week that the company had a great deal of latent capacity that would boost output in the short to medium term, with production having been held up at Escondida, as well as at coal operations in Australia's Queensland state and oil operations in the Gulf of Mexico.
-By Robb M. Stewart, Dow Jones Newswires; +61 3 9292 2094; email@example.com