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BHP hits halfway mark on $5b WA iron ore mine

The nation’s biggest mining company, BHP, has hit the halfway mark in developing a new iron ore mine in Western Australia. The new South Flank site is expected to produce the steelmaking raw material for at least 25 years, as the company’s Yandi mine nears the end of its life.

BHP on Thursday announced that works on the $US3.6 billion ($5.3 billion) South Flank site in the WA Pilbara were now 50 per cent complete and the first ore is on track to be extracted by 2021.

The mining giant expects the South Flank project to enhance the average iron content of its iron ore, BHP’s biggest moneymaker and Australia’s biggest export commodity. The price and production volumes of iron ore are considered pivotal to the strength of the federal budget and the economy.

A sudden surge in the price of iron ore earlier this year delivered a windfall to Australia’s major miners after a fatal dam disaster at a Brazilian mine prompted a worldwide supply shortage. But the price has since begun to ease as supply stabilises and the US-China trade war weighs on demand from Chinese steel mills, which account for half of the world’s steel output. The iron ore price fell again overnight, shedding 5.5 per cent to $US87.86.

BHP’s progress update on South Flank comes as its rival Australian miners are also developing new mines in WA’s minerals-rich Pilbara, with Fortescue Metals Group approving its $1.7 billion Eliwana mine and Rio Tinto approving its $2.6 billion Koodaideri mine last year.

Also on Thursday, BHP announced it would spend $500 million on its Canadian potash project before the board makes a final decision on whether to proceed with the development of the mine.

The company set itself a deadline of February 2021 at the latest for a final decision on the Jansen project in Canada’s Saskatchewan province.

Releasing a quarterly operational update on Thursday, BHP reported that its flagship iron ore division produced 69 million tonnes in the three months to September 30, a drop of 3 per cent compared to the previous quarter but flat when compared to the same period last year.

BHP attributed the quarterly drop to significant planned maintenance at Port Hedland, including a major maintenance program on car dumpers that tip the piles of iron ore out of freight train carriages.

Despite the drop, the miner maintained its iron ore production forecast for the 2020 financial year of between 273 million tonnes and 286 million tonnes.

Morgan Stanley analyst Alain Gabriel said BHP’s first-quarter production of iron ore and copper, which together account for 75 per cent of its projected early earnings, were soft and had missed forecasts by 1-2 per cent.

“The impact of maintenance at Olympic Dam and Port Hedland was more pronounced that we expected,” Mr Gabriel said.

“Yet there is scope for the company to catch up in subsequent quarters and meet guidance.”

BHP chief executive Andrew Mackenzie said the company had delivered a “solid start to the 2020 financial year”.

“While group production for the quarter decreased slightly due to the expected impacts of planned maintenance and natural field decline in petroleum, guidance remains unchanged and we are on track to deliver slightly higher volumes than last financial year.”

As of the end of the September 2019 quarter, BHP said it had six major projects under development in petroleum, copper, iron ore and potash, with a combined budget of $US11.4 billion ($16.8 billion) over the life of the projects.
Source: Sydney Morning Herald

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