BHP reduces manganese production, adjusts iron production

BHP Billiton (BHP-N, BLT-L), the world’s largest mining company, has approved a capacity expansion at its iron ore mining operations in Western Australia, which will raise production by 50 million tonnes to 205 million tonnes per year in 2011. BHP owns an 85% interest in the operation.

The project, which BHP calls Rapid Growth Project 5 (RGP5), is valued at US$4.8 billion, of which US$930 million has been approved previously.

“While there is substantial uncertainty in the short term outlook, this investment decision highlights BHP Billiton’s confidence that the long term outlook remains positive. The expansion also underscores our belief that high-quality West Australian iron ore with close proximity to China and the Asian markets, is an important source of supply.  With our strong balance sheet, we are well positioned to invest in hiqh-quality and low-risk projects such as RGP5,” Marcus Randolph, BHP’s chief executive of ferrous and coal, said in a release.

Most of the production growth will come from the Yandi and Mining Area C operations. Investments will also be directed at infrastructure, including additional shipping berths at the Port Hedland inner harbour, double-tracking at portions of the company’s rail system, and additional crushing, screening and stockpiling facilities at Yandi.

Citing weak market demand, the company has also announced a temporary decrease in iron ore pellet production at its 50%-owned Samarco joint venture in Brazil. The decision will be re-assessed in January. The facility produces 21.6 million tonnes per year at full capacity, of which 14 million tonnes of production have been taken off-line by the move.

The company has also temporarily cut manganese production at Samancor, where BHP has a 60% stake and Anglo American (AAUK-N, AAL-L) owns a 40% stake. Ore production will be cut 21%, and alloy production cut 23% next year.

Samancor’s total output capacity is 7 million tonnes ore per year, of which 1.5 million tonnes will be cut. Alloy output capacity is 725,000 tonnes per year, of which 170,000 tonnes will be cut.

The reduction in manganese ore output is expected to be balanced between GEMCO in Australia and Hotazel in South Africa. Alloys are produced in TEMCO in Australia and Metalloys in South Africa.

BHP cites weak conditions in the carbon steel markets as the reason for the reductions. The company will use the production cuts to perform major maintenance at the idled facilities.