Expansion underpins future of mining giant


Last week was all about Olympic Dam, BHP Billiton's massive copper, gold and uranium mine in South Australia.

It started with the SA and Federal Governments approving the environmental impact statement for the mine expansion project, which triggered BHP to commit $US1.2 billion in capital to long lead items for the project.

Board approval for the project is not expected until mid-2012. However, according to BHP chief executive Marius Kloppers, "the pre-commitment funding is another important milestone in the development of this world class ore-body".

It appears that the career of Mr Kloppers and the success of the Olympic Dam deposit are intertwined.

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Mr Kloppers, in his previous role as chief commercial officer, led the BHP team to successfully acquire Western Mining Corporation for $9.2 billion in 2005, outbidding Xstrata in the process.

It's well documented that the Olympic Dam ore deposit is in the shape of a frying pan, with current underground mining operations focused on the 'handle' of the deposit. The proposed expansion, estimated to cost about $20 billion, will focus on uncovering the 'pan' of the deposit in an open-cut mining operation.

To get an idea of the magnitude of the ore body, there are 350 metres of overburden sitting on top of the rich ore, which will take an estimated six years to remove.

The long-term nature of the Olympic Dam expansion is a welcome relief in what can be a very short-sighted world. Deutsche Bank analysts have forecast the project will not be cashflow positive until 2024, so don't expect the recent announcements to send the BHP share price skyrocketing in anticipation.

What it does do is underpin the future of BHP, with Mr Kloppers expecting the mine to still be in production in 100 years.

Copper prices, despite a 25 per cent fall in September, are trading toward historically high levels, so you would expect BHP to be targeting the areas of the pit that are rich in copper-gold ore, rather than uranium-rich areas. The uranium price continues to falter on the back of the Fukushima disaster and general sector dissent.

For those interested in a more in-depth look at the history of what may one day be Australia's largest mine, you might want to read David Upton's book, The Olympic Dam Story.


_Information contained in this article does not consider your personal circumstances. You should consult a stockbroking professional before making any investment decisions. Sentinel may hold positions in stocks discussed from time to time. _

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