BHP, Rio splash $3.7b on Chilean water

As mining companies globally curtail capital spending, BHP and Rio, the owners of the world's largest copper mine, the Escondida project in Chile, are to spend $US3.4 billion ($3.7 billion) on a water plant.

The loss of access to water in four years has forced the partners in the project into a heavy new round of spending at the project.

When completed, the water plant will give the partners the option of a significant upgrade in capacity as well.

BHP's share of the new round of investment is estimated at $US1.97 billion and Rio's $US1.03 billion, with construction to begin immediately, and completion planned for 2017.

The commitment comes with the partners in the middle of a $US4.5 billion round of spending, which is to be completed next year, mainly on a new ore concentrator and ancillary upgrades.

When completed, this upgrade will enable production to run at more than 1.3 million tonnes of copper annually from 2015.

Early in 2012, when the partners in Escondida disclosed this $US4.5 billion upgrade, they indicated that this was the first in a series of programs to substantially expand capacity at the mine.

Lifting output further would need much more water, which the planned desalination plant will provide.

"This investment was well flagged on the site visit to Escondida in October 2012," a Deutsche Bank analyst, Paul Young, said on Friday.

"However, the timing is a little earlier than we had expected. The critical path is the expiry of the local aquifer leases in 2017, which currently supply 75 per cent of the mine's water."

The planned desalination plant will increase the water supply to the Escondida mine by close to 50 per cent. It will also will give the partners the option of a further sizeable lift to ore throughput and copper production.

"Securing a sustainable water supply in the Atacama Desert is a major priority for all Chilean copper producers," said BHP's copper division head, Peter Beaven. "The new desalination facility will minimise our reliance on the region's aquifers, which will help us to meet our environmental commitments and enable us to achieve our long-term business strategy."

Rio Tinto's investment will be funded through the company's share of Escondida's cash flows, it said.

BHP has a 57.5 per cent share of the project and is the manager, with Rio holding a 30 per cent stake.

Both companies made a big show earlier this year of moving to axe a number of planned big investment programs, amid caution over the outlook for metals prices, with the plan for the desalination plant at Escondida the largest new spending commitment by either company since the cutbacks.

BHP, in particular, said it would cut to $18 billion from $22 billion planned spending in fiscal 2014, compared with fiscal 2013.

In the 12 months to the end of June, Escondida's copper production increased by 28 per cent to 1.1 million tonnes as the average copper grade mined rose to 1.4 per cent and milling rates improved.

Output is expected to be sustained at this level in the 2014 financial year, before increasing to approximately 1.3 million tonnes in the 2015 financial year.