BHP Says Labor, Tool Shortages Strain Olympic Dam (Update2)
By Rebecca Keenan
BHP Billiton Ltd., the world's biggest mining company, said labor and equipment shortages forced it to stagger the proposed expansion of Australia's Olympic Dam uranium, copper and gold mine, forecast to cost at least $6 billion.
``Doing it all in one go in this kind of environment would be very difficult if not impossible to execute,'' Graeme Hunt, the Melbourne-based company's president for uranium and development of Olympic Dam, said in an interview. BHP said in December the expansion will be undertaken in at least four stages.
A global mining boom has stoked competition for skilled workers and raised prices for equipment and contractors at a time of record fuel costs. The development cost of Olympic Dam, the world's biggest uranium deposit and fourth-largest copper lode, may rise threefold to as much as $15 billion, according to estimates last year by Merrill Lynch & Co. and JPMorgan Chase & Co.
``They have to factor in a much higher number for labor and skills shortages,'' Michael McCormick, who helps manage about $155 million at Leyland Private Asset Management in Sydney, said by phone. ``It is very important for their growth profile to be able to get the expansion done with costs relatively under control.''
BHP, which has made a hostile $177 billion bid for Rio Tinto Group, rose 92 cents, or 2 percent, to A$46.02 at the 4:10 p.m. Sydney time close on the Australian stock exchange.
``It will be a much bigger project than what we were originally thinking,'' Hunt said, also declining to give a cost estimate. ``So more steps in the staircase, but going higher.''
Rio Tinto cast doubt on the timing and viability of the expansion of Olympic Dam, the Australian reported March 27, citing Rio Chief Executive Officer Tom Albanese. BHP said in February it had arranged a $55 billion loan to help fund the Rio purchase.
Hunt cited ``equipment shortages, building all that in the middle of the Australian desert, access to skills, lead time'' as reasons for the decision to stagger the development of Olympic Dam. The decision wasn't driven by the financing, he said.
Open Pit
The expansion will increase the mine's copper output fourfold to 730,000 metric tons a year, boost gold production eightfold and uranium by almost fivefold, according to company forecasts. Creating an open pit mine will require the removal of about 1 million tons of earth every day for four years, according to the South Australian government. The desert ore body dates back 1.5 billion years
``It was always going to be a stretch doing it in one lot,'' Peter Chilton, who manages $1.4 billion at Constellation Capital Management in Sydney, said today by phone. ``If you buy something of that magnitude and don't develop it quick enough it doesn't look good.''
Chief Executive Officer Marius Kloppers said in December such projects would be more expensive to build than a couple of years ago. The cost may have increased to $20 billion, the London-based Times reported last November, citing unidentified people close to BHP. The company acquired the mine when it bought WMC Resources Ltd. in 2005 for A$9.2 billion ($8.8 billion).
``The schedule now is to complete the pre-feasibility study by the end of the year,'' said Hunt, adding the company wouldn't release a cost estimate until the assessment was completed. ``The configuration of the project looks nothing like the WMC project. We will release it when we are ready and we will explain what the expansion steps look like in more detail and what we think it will cost.''
To contact the reporter on this story: Rebecca Keenan in Melbourne at
[email protected]
Last Updated: May 29, 2008
) would reduce if our volume of mining activity & exports was reduced. Wage pressures would also ease a bit.