BHP clears path for US$2.5bn expansion of Chile's Spence mine

The board of global mining giant BHP has given its approval to go ahead with the Spence Growth Option (SGO) project, which is intended to extend the life of the copper mine in northern Chile by more than 50 years.

The board approved capital expenditure of US$2.46bn for the project, with BHP CEO Andrew Mackenzie saying in a statement that the SGO project "supports BHP's strategy to deliver near-term, valuable copper production."

The initiative envisions construction and operation of a new concentrator plant, as well as a new desalination plant and a 154km pipeline.

The company has already secured the environmental permits for both the mine expansion and the desalination plant and pipeline component, which the company submitted separately to local environmental authorities.

BHP said that in the first 10 years of operation, production from SGO will be approximately 185,000t/y of copper in concentrate and 4,000t/y of payable molybdenum, with first production expected in the 2021 financial year. The current copper cathode stream will continue until the 2025 financial year.

BHP's financial year runs from July 1 to June 30 of the following year.

The project will convert 1.3Bt of measured and indicated mineral resources to hypogene sulfide ore resources, the company said, noting that the SGO has an expected internal rate of return of 16% and an expected payback period of 4.5 years from first production.

BHP said the water component will be built and operated by a third party under a BOOT (build, own, operate and transfer) contract, "which has been separately awarded, with nominal, undiscounted value of lease payment obligations over the 20-year contract term totaling US$1.43bn."

Last week it was reported that BHP was in talks with a consortium comprised by Japan's Mitsui and Spain's Grupo Cobra to build the desalination plant and pipeline.

"SGO has been extensively studied and we have made significant improvements to project cost and design so that it is able to compete in our portfolio of attractive development options," Mackenzie said.

Spence's copper output in the first six months of the year was 102,900t, up 27.4% year-on-year, according to state copper commission Cochilco.