BHP bullish on Pilbara expansion
'We continue to see significant opportunity for further growth.' Andrew Mackenzie, BHP
Speaking in Houston over the past 24 hours, BHP chief executive Andrew Mackenzie revealed conversations he had held with his iron ore boss Jimmy Wilson, where the pair discussed boosting iron ore exports at a one-off cost of about $100 for each new annual export tonne created.
BHP is expected to export 212 million tonnes from the Pilbara in fiscal 2014, and the low-cost expansion Mr Mackenzie and Mr Wilson were referring to will be the 50-million-tonne increase that will lift Pilbara exports to 270 million tonnes.
"He's assured me that the overall increment from 220 to 270 million tonnes per annum will be delivered at a capital efficiency at, or better than, $US100 per annual tonne," Mr Mackenzie said.
"We continue to see significant opportunity for further growth in iron ore, and we'll start very much with some of the lowest-capital, higher-return projects."
A capital efficiency of $US100 a tonne is low by modern standards in the Pilbara, with Rio Tinto suggesting in recent weeks that its coming expansion in the Pilbara would be completed at a cost of just over $US120 per tonne.
The disparity between the two companies could be influenced by the different nature of the works needed to expand, but nonetheless the costing edge will be a nice novelty for BHP, traditionally a slightly higher-cost producer in the Pilbara.
"You can imagine my challenge to Jimmy is to do better and to continue to work our productivity agenda both in what we've got and what we might invest to actually get to a number which is only two digits in millions of dollars per tonnes rather than three," said Mr Mackenzie, while stressing that such an outcome was not guaranteed.
Mr Mackenzie's comments imply an overall cost for BHP of about $US5 billion to expand its Pilbara iron ore division to 270 million tonnes, but given the development plan for the Pilbara is not fully determined, the numbers are far from settled.
BHP is focusing on removing bottlenecks from its export system and has previously highlighted the production chain between iron ore arriving at Port Hedland and being loaded onto ships as one area to be improved.
The company recently said it was spending $US301 million to install two new ship loaders at Port Hedland.
Mr Mackenzie also speculated that productivity measures could see it lift its long-term coking coal production from Queensland above official guidance without spending further capital.
He also revealed he had been "very frustrated" by the poor performance of the copper smelter at Olympic Dam in South Australia, and flagged that a shutdown at the smelter might be necessary early next year.
InvestSMART FORUM: Come and meet the team
We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free