As it faces the lowest prices for iron ore in more than five years and slow down in demand from China BHP Billiton, the largest mining company in the world, is ceasing to make large investments in iron ore expansion, focusing instead on copper and petroleum.
BHP Chief Executive Officer Andrew Mackenzie spoke to the media this week and explained that while BHP is still increasing production, the company last approved spending on an iron ore expansion in 2011.
BHP and rivals Rio Tinto Group and Vale SA (VALE) are flooding the global iron ore market after a $120 billion spending spree to boost the capacity of their mines from Australia to Brazil, Bloomberg reported.
Global seaborne output will exceed demand by 100 Mt (110 million st) this year from 16 Mt (19 million st) in 2013, HSBC Holdings Plc said last month. Prices, which are trading around $70 a ton in China, may drop to below $60 a ton next year, according to Citigroup Inc. forecasts.
“At these prices, we still have a very decent business,” Mackenzie said. “We’ve been fairly clear that prices at about these levels were what we were expecting for the longer term.”
Investments in copper may help BHP seize on rising demand for energy in emerging economies. Demand from China, the biggest metals consumer, will be supported by electricity grid expansion and greater adoption of renewable energy sources, all of which require more copper wiring, according to Citigroup.
The prospects for an expansion of BHP’s Olympic Dam copper, gold and uranium mine in Australia are looking more promising after testing of new processing technology shows early signs of success, Mackenzie said.
Olympic Dam in South Australia is the world’s largest uranium deposit and fourth-biggest copper deposit. BHP is pilot testing a heap leaching extraction process used in its copper mines in Chile.
In 2012, BHP halted a proposed expansion of Olympic Dam, estimated by Deutsche Bank AG to cost $33 billion. Mackenzie was addressing the first annual meeting held in the state since the decision.
Australia’s Prime Minister Tony Abbott has offered to assist BHP in advancing the Olympic Dam expansion, seeking to bolster the region’s economy with manufacturing scheduled to end at General Motors Co.’s Holden unit. The carmaker will cease production in 2017 after 69 years, cutting about 2,900 jobs at sites in the state and in neighboring Victoria.
Trials of a heap leaching processing are planned to begin at the site in late 2016 for three years, the company said in July. Experiments so far are being conducted at a laboratory in Adelaide’s Wingfield district.
“We are looking at the medium term for the deposit, it’s one of the best deposits in the world, it’s absolutely critical to our copper strategy,” Mackenzie told reporters. “What we also need is to have cheaper ways of processing.”
Shareholders will vote in May on plans to spinoff a collection of smaller assets into a new Perth-based company, Nasser told the meeting. The demerger would be the biggest in the mining industry, separating aluminum, coal and silver assets to create a company valued at about $15 billion after it begins trading next year.