Resource News

BHP approves a $2bn expansion of WA iron ore operations

MINING giant BHP Billiton is pushing ahead with its iron ore expansion plans in the Pilbara, agreeing to spend $US1.93 billion ($2.15 billion) to increase output.

The company said the funding forms part of its Rapid Growth Project 6 in the Pilbara region designed to increase the annual capacity of the operations to 240 million tonnes by 2013, and will be used to procure long lead time items and detailed engineering for port, rail and the Jimblebar mine expansion.

BHP said its share of the $US1.93bn capital expenditure was $US1.73 billion ($1.94bn) under its Pilbara iron ore partnership with Japan’s Itochu Corporation and Mitsui & Company.

The commitment to invest in future developments comes amid increasing debate around the speculation that the Henry tax review has recommended a 40 per cent resource rent tax, charged on operating margins and based on the petroleum resource rent tax.

The tax would replace state-based royalties of between 2 and 10 per cent of revenue and analysts have suggested that the tax could cost mining giants BHP Billiton and Rio Tinto a combined $US5 billion ($5.4bn) in earnings a year.

The world’s largest miner is yet to weigh into the debate, preferring to wait for the exact details of what is reportedly being proposed in the tax review.

But industry insiders have warned it could impact future investment decisions in the local sector and have called for clarity on the issue.

BHP’s investment decision represents an early spending in its Rapid Growth Project 6 (RGP6), the company said in a statement.

“The funding will allow early procurement of long lead time items and detailed engineering to continue the expansion of the inner harbour at Port Hedland, progress rail track duplication works and expand the Jimblebar mining operation,” the company said.

Shares in the miner didn’t jump on the news, dropping 2.33 per cent to $39.74 in early afternoon trading. Rio Tinto also fell, declining 3.68 per cent to $68.81 following on from weaker leads on the London Metals Exchange and a weaker Australian dollar.

BHP Billiton president of iron ore Ian Ashby said the investment was part of the miner’s long-term strategy of adding capacity in iron ore “to support our confidence in the longer term demand for iron ore globally”.

“By the time RGP6 is completed, we will have more than tripled installed capacity at our Western Australia Iron Ore operations since we first invested in our accelerated growth program in 2002,” Mr Ashby said.

The approval for the balance of the RGP6 capital will be considered during the second half of the 2010 calendar year.

Rio Tinto will have the option to join in the RGP6 program, once the two miners establish their proposed WA iron ore joint venture, expected by them in the second half of 2010.

Both majors continue to push the benefits of the iron ore merger but it is expected to face a strong review from European regulators, who have hinted the would focus on seaborne iron ore markets, rather than total global production.

The EU competition watchdog the European Commission confirmed this week it had launched an antitrust investigation into the pair’s plans to merge their iron ore operations in Western Australia’s Pilbara.

The EC is seen as the biggest potential regulatory block to the deal, but China is also reviewing its options to oppose the deal, which BHP and Rio Tinto want finalised this year…read more at The Australian