BHP enjoys higher output at Ekati mine

BHP Billiton‘s (BHP-N) share of mine production at Ekati in the Northwest Territories was 1.1 million carats in the recent fourth quarter — 15% higher than in the corresponding period of 2001 and 12% higher than in the third quarter of 2002.

The increase is attributed to improvements at the processing plant and mining of higher-grade ore from the Misery pit.

Ekati currently produces more than 4 million carats of rough diamonds annually, representing about 3% of current world rough production by weight and 6% of value.

The mine is operated and 80%-owned by BHP Billiton Diamonds, a wholly owned division of BHP Billiton. The remainder is split evenly between geologists Charles Fipke and Stewart Blusson.

For the second half of 2002, BHP Billiton’s attributed production from Ekati exceeded 2 million carats, compared with 1.7 million carats in the corresponding period of 2001.

BHP recently created the diamonds and specialty products group, which encompasses the existing businesses of diamonds, titanium minerals, Integris Metals (a 50%-owned metals distributor), and exploration and technology. The group contributed US$150 million in earnings before interest and tax (EBIT) for the recent 6-month period, an increase of 8.7% over the corresponding period of the previous year. The increase was primarily due to increased diamond production, achieved through higher plant throughput and processing efficiencies at Ekati. Production currently averages 10,500 tonnes per day.

High throughput was offset by lower realized diamond prices, which were down 28% (reflecting a change in product mix), compared with the second half of 2001.

Since startup in 1998, the Ekati mine has expanded from one pit, Panda, to open-pit production from the Misery and Koala pipes. In November 2002, the Koala North underground operation officially opened. Koala North is a relatively small kimberlite pipe between the Koala and Panda pipes. Underground development work for Koala North began in February 2002. A 900-metre-long ramp has been driven into the orebody. This operation is seen as a prelude to going underground at the Panda and Koala pipes.

The Ekati mine plan is based on multiple-pipe development. The estimated life of the project life, incorporating the Panda, Koala, Misery and Fox pipes, is 15 years. Three more pipes, Sable, Pigeon and Beartooth, are being permitted, and these are expected to add three years to the lifespan. Based on calculations at the end of 2000, carat values for the individual pipes range from a low of US$34 per carat for the Misery pipe to US$168 for Panda.

Proven and probable kimberlite ore reserves at June 30, 2002, totalled 58 million tonnes grading 0.9 carat per tonne, equivalent to 53 million recoverable carats, based on a minimum-size cutoff of 1.5 mm. The overall resource stands at 114 million tonnes averaging 1.3 carats per tonne, or 148 million carats, using a 1-mm cutoff. Two pipes included in the resource estimate, Jay and Lynx, occur in the Buffer zone claims, which surround the mine’s core claim block.

Eight pipes

The Buffer zone claims are held 58.8% by BHP Billiton, 31.2% by Archon Minerals (ACS-V), and 10% by Fipke. Exploration core drilling of geophysical and geochemical targets in the summer of 2001 confirmed eight additional kimberlite pipes, bringing to 146 the total number of known kimberlite occurrences on the mine property and outlying Buffer zone claims. BHP Billiton reports that further exploration and engineering studies are expected to bring some of these pipes into the mine plan.

BHP Billiton posted a US$913-million profit (US15 per share) for the first six months of fiscal 2003, a 19.4% decline from the previous year’s period. Earnings were affected by unfavourable foreign currency adjustments on net debt and tax.

BHP Billiton has grouped its major operating assets into the following customer sector groups: petroleum, carbon steel materials, aluminum, diamonds and specialty products, energy coal, base metals, and stainless steel materials. Its diversified asset base generated an operating cash flow for the half-year period of US$1.26 billion, a decline of 7.6% from the corresponding period of the previous year. The strong cash flow has enabled the company to continue to invest in its pipeline of growth projects, while increasing returns to shareholders in the form of dividends. The company started three new projects in the last half-year, including the Escondida Phase 4 copper project in Chile, the San Juan underground coal project in New Mexico, and the Bream natural gas pipeline in Australia. BHP Billiton has 13 additional major projects that have been approved and are in development.

Base metals benefited from high average realized copper prices during the first half. The base metal group contributed US$83 million in EBIT, up from US$69 million in the year-earlier period, an increase of 20.3%. The prior period included a US$38-million writeoff of the La Grange project.

BHP Billiton saw a full 6-month contribution from Antamina and the ramp-up of the Escondida Phase 4 project.

Base metals have been adversely affected by the company’s voluntary decision to cut back copper production at Tintaya and Escondida.

“The market, in general, seems to be relatively unbalanced, and that’s a function of the cutbacks, as well as good demand out of China,” says CEO Chip Goodyear. “We will review our production situation at Escondida and Tintaya in the middle of the year, and will look at the supply and demand situation at that time.”