Cannington offers silver lining for BHP
By Barry Fitzgerald
BHP Billiton could become the world’s biggest silver producer should it decide to expand its Cannington silver and base metals mine near McKinlay in northwest Queensland.
The mine already ranks BHP as the world’s third biggest silver producer (32 million ounces last year) behind Mexico’s Fresnillo (42 million ounces) and Poland’s KGHM (41 million ounces).
Cannington has a subterranean profile within BHP. But it was the company’s sixth most profitable mining operation last year, contributing $US1.19 billion to earnings before interest and tax from a net operating asset base of only $US202 million.
The potential for expansion at Cannington was disclosed in an investor briefing yesterday by BHP’s president of base metals, Peter Beaven.
His presentation focused mainly on the group’s Chilean copper assets, including the world’s biggest copper mine, the Escondida operation in the Atacama desert.
Mr Beaven said production guidance for the mine remained unchanged despite a “substantial uplift” in the current June quarter thanks to the previously advised access to higher grade ores.
Mr Beaven said the Cannington mine was one of the lowest cost producers of silver and lead in the world.
The single underground operation has an annual processing capacity of more than three million tonnes of ore.
Mr Beaven revealed that there had been a “significant expansion of near-surface” resources, giving BHP the option to “significantly extend life of mine by more than 20 years with the staged development of an open pit”.
He said there was potential to increase ore processing rates by 66 per cent to five million tonnes a year.
The project would benefit from accessing existing “outbound” road, rail and port infrastructure.
Despite its potential to be expanded and its present high cash generation capability, the expansion is not yet part of BHP’s process of sanctioning new investments.
Much of Cannington’s profitability is due to the sharp rise in silver prices.
Despite the recent retreat to $US27 an ounce in sympathy with gold, the metal is still trading at more than twice its level of three years ago, when the potential for Cannington to be expanded last got an airing.
Cannington has long been considered an asset that BHP could sell or float. Analysts value the project at as much as $US5 billion and argue that its value is not reflected in BHP’s share price.
The potential for it to be sold has again become a subject of chatter in response to BHP’s new-found conservatism on spending up big on “mega” resource projects such as Olympic Dam in South Australia, Pilbara iron ore and Jansen potash in Canada. The new conservatism reflects the squeeze on cashflows from the slump in all commodities except iron ore.