Antinuclear

OLympic Dam uranium mine expansion a financial white elephant despite government help

BHP cans Olympic Dam expansion Financial Review 22 AUG 2012  JAMIE FREED, MATHEW DUNCKLEY AND GEMMA DALEY BHP Billiton has confirmed it is not proceeding with a planned $US20 billion expansion of its Olympic Dam copper-uranium mine in South Australia as it reported its first annual profit fall in three years. As foreshadowed by The Australian Financial Review, the world’s largest miner said sluggish market conditions including subdued commodity prices and higher capital costs had triggered the decision and it would hold talks with the South Australian government in the coming months over the project.

BHP will take a $US346 million writedown on the project in the 2012 financial year……

Before BHP’s announcment, Prime Minister Julia Gillard was asked during question time in Parliament to guarantee the outlook of the project.

“We have legislated carbon pricing so BHP when they are making those decisions can do it against a backdrop of certainty,” she said.

“But in fact, the uncertainty for BHP and Olympic Dam, the uncertainty for every business in this country comes from the destructive negativity of the Leader of the Opposition and his reckless attempt to roll back every economic reform that makes sense for this country and will build our prosperity.”

BHP has been working on plans to expand Olympic Dam as an open pit since the $9.2 billion acquisition of WMC Resources in 2005, which was championed internally by its now chief executive Marius Kloppers……BHP has environmental approvals in place for a much smaller expansion of the existing underground operation to 350,000 tonnes of copper production a year but Mr Mackenzie indicated it had done very little work on that option relative to the open pit.

Expanding the underground mine, at a potential cost of $US2 billion to $US3 billion, could make building an open pit more difficult in the future.

Mr Kloppers is likely to come under pressure from investors over the large amount of spending to date on the open pit concept.

BHP last year approved $US1.2 billion of pre-commitment capital for the project and likely spent hundreds of millions of dollars prior to that on studies of the expansion over the last seven years.

However, one analyst noted that spending on drilling and metallurgical studies along with some surface infrastructure could still be applied to an underground expansion…..Credit Suisse analyst Paul McTaggart has calculated the project has only a 10 per cent internal rate of return based on long-term prices, which is lower than the 15 per cent typically targeted by BHP. He does not expect it would be free cash-flow positive until 2021 if approved this year.

The project has suffered from rising capital costs amid a stronger Australian dollar and higher input and labour costs and a weaker outlook for the key byproduct, uranium….. http://afr.com/p/markets/market_wrap/bhp_confirms_olympic_dam_expansion_ePeUWL4Wd1ZVrTW75RWleO

August 23, 2012 - Posted by Christina Macpherson | AUSTRALIA - NATIONAL, business, uranium