BHP OKs Aussie Iron Ore Expansion

BHP Billiton (BHP-N, BLT-l) has approved an 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.

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.

In a statement, Marcus Randolph, BHP’s chief executive of ferrous and coal, said that regardless of the uncertainty of the short-term outlook for iron ore, the company is confident that long-term prospects are good.

“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,” he said, adding that RGP5 is a low-risk, high-quality project.

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 further crushing, screening and stockpiling facilities at Yandi.

BHP owns an 85% interest in the operation with Itochu Minerals & Energy of Australia, Mitsui-Itochu Iron and Mitsui Iron Ore Corp. holding the remainder.

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 reassessed in January. The facility produces 21.6 million tonnes per year at full capacity, of which 14 million tonnes of production have been taken offline by the move.

The company has also temporarily cut manganese production at its 60%-owned Samancor joint venture with Anglo American (AAUK-N, AAL-l), which holds 40%. Ore production will be cut by 21%, and alloy production by 23% next year.

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

The reduction in manganese production is expected to be balanced between GEMCO in Australia and Hotazel in South Africa. Alloys are produced by 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 perform major maintenance at the idled facilities.