BHP Billiton costs up but Escondida projects, Andean exploration advance

- Wednesday, August 22, 2012

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Global resources giant BHP Billiton's (NYSE: BHP) company-wide controllable cash costs rose an average 6% in the 2012 financial year ended June 30, reducing underlying Ebit by US$2bn, CFO Graham Kerr said Wednesday.

The company's base metals business showed the third highest FY12 cash cost escalation after metallurgical coal and aluminum.

Base metals saw a US$841mn impact on Ebit on general cost pressure such as from labor and inputs, combined with labor disruptions and lower ore grades at the 57.5%-controlled Escondida copper mine in Chile. The mine also suffered from wet weather during the period.

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The company is looking to get a handle on controllable costs by getting the base metals - Escondida in particular - and metallurgical coal units "back to their steady state" and fully recovered from recent challenges, Kerr said during a presentation to discuss results.

PROJECTS

All BHP Billiton's major organic growth projects underway - worth US$22.8bn in approved capital - are due to see first output by 2015 and will continue despite the company's review of its capital expenditure program and the suspension of the massive Olympic Dam expansion in Australia.

"Our committed capital expenditure program continues, largely on low risk high return brownfield projects that will by and large deliver production by the end of the 2015 calendar year," said CEO Marius Kloppers.

The company has suspended its US$30bn expansion at the Olympic Dam copper-uranium mine and plans to apply new technologies to rework the project economics, but is not expecting to approve the expansion during FY2013, Kloppers said.

BHP Billiton is also unlikely to approve any additional projects over the next 12 months.

"I would be very surprised if there were a very material investment that could be triggered in the next 12 months, even if conditions are very benign or we get a surge to the upside," said the CEO.

ESCONDIDA

The Escondida mine is on its way to a 50% copper production increase to 1.3Mt/y in the 2015 fiscal year.

The US$319mn Ore Access project which involved relocating certain infrastructure to access higher grades was completed in June, underpinning a targeted 20% production increase in FY2013.

Next in line is the Laguna Seca debottlenecking project which will add 15,000t/d of throughput capacity, followed by the US$3.8bn Organic Growth Project 1 (OGP1), which involves adding a new concentrator and will add another 32,000t/d in the first half of the 2015 calendar year, taking throughput capacity 277,000t/d on a 100% basis.

The Oxide Leach Area (OLAP) project (US$721mn) will also help to keep Escondida output high through this decade, the company said.

The company's 57.5% stake in Escondida's copper output slipped to 505,800t in fiscal 2012 from 569,600t in the previous year.

EXPLORATION

Meanwhile, BHP Billiton has budgeted US$1.5bn for exploration this fiscal year, compared to US$2.1bn last year.

Some US$750mn will go to conventional oil exploration, while US$750mn will pay for minerals exploration. "Approximately US$200mn is on pure greenfield exploration activity and almost all of that is going into copper exploration and almost all of that is going into the Andean region," said Kloppers.

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