BHP looking at expansion options for Minerals Australia

BHP’s Minerals Australia business outlined plans to grow value and improve returns on capital across its operations in Australia on Tuesday.

The FTSE 250 company said the quality, scale, concentration and location of the Minerals Australia assets supported improvement initiatives, “compelling” latent capacity options, efficient technology deployment and “attractive” investment opportunities.

“By sharing knowledge and replicating best practice across our global portfolio, we've been able to substantially reduce unit costs at our Australian mining operations over the last five years,” said BHP Minerals Australia president Mike Henry, speaking to investors and analysts at a briefing in Adelaide, South Australia.

“But we have further to go.

“We can make ourselves safer and even more productive, and expect to lower our unit costs by a further 10% over the medium-term.”

Henry said that, through strengthening its maintenance capability and processes - including by bringing in expertise from other industries - and through better leveraging technology, its global ‘Maintenance Centre of Excellence’ was enabling a “step-change” in maintenance performance across BHP.

With its global technology initiatives and asset-level programmes to unlock resources and lower costs, Henry added that the board expected its Australian mining operations to deliver $1.6bn of additional productivity gains over the next two years.

“We also have a suite of attractive medium-term investment opportunities.

“While these remain subject to our strict group-level capital allocation framework tests, with average returns potentially exceeding 40%, they are well placed to compete for capital.”

Mr Henry highlighted the brownfield expansion option (BFX) at Olympic Dam as an example of a project with the potential to deliver sustainable returns to shareholders, government and the local community.

Also speaking at the briefing, Olympic Dam asset president Jacqui McGill said the BFX option could provide a “capital efficient path” to increased capacity through accelerated development into the Southern Mine Area.

“As we move into the Southern Mine Area we expect to see the copper grade increase to 3% by financial year 2023, which we believe would coincide with a structural deficit in the copper market,” McGill explained.

“If approved, the BFX option could lift production capacity to 330 ktpa and move Olympic Dam into the first quartile of the cost curve, which is where we strive to be with all our assets at BHP.

“Any investment however, must compete for capital against all other options, including returns to shareholders.”

McGill also outlined longer-term development options that had the potential to “significantly increase” the volume of copper produced, including the use of heap leach technology.

Combined, BHP said the plans created “significant value” and supported improved returns both at Olympic Dam and across its minerals operations in Australia.