‘500 years’ of resource, BHP makes the case for Olympic Dam expansion

BHP is eyeing a possible $US2.1 billion ($2.8 billion) expansion of its Olympic Dam underground mine in South , where it says the copper resource is so large it would take 500 years to deplete at the current rate of mining.
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Top BHP executives briefed investors and analysts on the global miner’s Olympic Dam operations and hopes for expansion on Tuesday in Adelaide, and confirmed that the so-called Brownfield Expansion (BFX) option at Olympic Dam was likely to be considered by BHP’s board in 2020.

But BHP executives stressed that any expansion at Olympic Dam would be “subject to strict capital allocation framework tests”. Investors and analysts are touring the site this week.

“We have a truly unique resource here at Olympic Dam. It has an enviable grade profile, which will be mined to coincide with attractive fundamentals in the copper market. It also has optionality to grow,” said Olympic Dam asset president Jacqui McGill.

“Current estimates put the OD (Olympic Dam) resource in excess of 120 million tonnes of copper equivalent. At current production rates, it would take us around 500 years to deplete it. And while scale is important, what makes Olympic Dam so unique is the combination of grade and scale,” she said.

Investors and analysts were told that the Olympic Dam ore body was well defined, with more than 3200 kilometres of drilling having been completed in more than 11,000 drill holes.

In a slide presentation by Ms McGill, investors and analysts were told that Olympic Dam, about 600 kilometres north of Adelaide, was the world’s third-largest “copper equivalent deposit”, as well as the world’s largest uranium deposit and third-largest gold deposit.

BHP confirmed that the first incremental production from the possible expansion, which is now in a “study phase”, was targeted for late 2021, with “project ramp-up and completion targeted late-CY (calendar year) 2022”.

The slide presentation said the expansion did not require changes to “existing government approvals for water, power supply and production”. The ore could be processed using “latent capacity and targeted de-bottlenecking of existing surface facilities,” it said.

“As we move into the Southern Mine Area we expect to see the copper grade increase to 3 per cent by financial year 2023, which we believe would coincide with a structural deficit in the copper market,” Ms McGill said.

“If approved, the BFX option could lift production capacity to 330 ktpa and move Olympic Dam into the first quartile of the cost curve, which is where we strive to be with all our assets at BHP,” she said.

BHP Minerals president Mike Henry said the Brownfield Expansion option had the potential to deliver sustainable returns to shareholders, the local community and to government. But a possible expansion would “have to compete against other options within the portfolio, as well as the option of returning funds to shareholders,” he said.

The potential $US2.1 billion investment at Olympic dam, 45 per cent of which would relate to mine development, excludes study costs of $US240 million ($315 million). The mooted expansion will be closely watched by investors.

Morningstar resources analyst Mathew Hodge said the latest plan to expand Olympic Dam was vastly lower than a multi-billion dollar plan to expand it via an open-pit mine operation proposed a few years ago.

“I think the way they seem to be going is making smaller bets generally. And I think that behaviour is good,” he said.

“Philosophically I think it’s a lower risk approach, and I think it’s the right way to go by focusing more on getting a higher return on your invested capital, rather than trying to maximise NPV (net present value) which can mean there’s a lot more capital at risk and there can be a significant dislocation between financial model and reality,” he said.

“Brownfield expansions tend to be higher incremental return, because you’re utilising the assets that you’ve got – you may be driving more volume across that fixed cost base. And they tend to be more capital efficient as well, generally speaking. Lower risk because you’ve already got a presence there and you’re operating. I think generally that approach is the way to go,” he said.

BHP is eyeing a possible $US2.1 billion ($2.8 billion) expansion of its Olympic Dam underground mine in South , where it says the copper resource is so large it would take 500 years to deplete at the current rate of mining.
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Top BHP executives briefed investors and analysts on the global miner’s Olympic Dam operations and hopes for expansion on Tuesday in Adelaide, and confirmed that the so-called Brownfield Expansion (BFX) option at Olympic Dam was likely to be considered by BHP’s board in 2020.

But BHP executives stressed that any expansion at Olympic Dam would be “subject to strict capital allocation framework tests”. Investors and analysts are touring the site this week.

“We have a truly unique resource here at Olympic Dam. It has an enviable grade profile, which will be mined to coincide with attractive fundamentals in the copper market. It also has optionality to grow,” said Olympic Dam asset president Jacqui McGill.

“Current estimates put the OD (Olympic Dam) resource in excess of 120 million tonnes of copper equivalent. At current production rates, it would take us around 500 years to deplete it. And while scale is important, what makes Olympic Dam so unique is the combination of grade and scale,” she said.

Investors and analysts were told that the Olympic Dam ore body was well defined, with more than 3200 kilometres of drilling having been completed in more than 11,000 drill holes.

In a slide presentation by Ms McGill, investors and analysts were told that Olympic Dam, about 600 kilometres north of Adelaide, was the world’s third-largest “copper equivalent deposit”, as well as the world’s largest uranium deposit and third-largest gold deposit.

BHP confirmed that the first incremental production from the possible expansion, which is now in a “study phase”, was targeted for late 2021, with “project ramp-up and completion targeted late-CY (calendar year) 2022”.

The slide presentation said the expansion did not require changes to “existing government approvals for water, power supply and production”. The ore could be processed using “latent capacity and targeted de-bottlenecking of existing surface facilities,” it said.

“As we move into the Southern Mine Area we expect to see the copper grade increase to 3 per cent by financial year 2023, which we believe would coincide with a structural deficit in the copper market,” Ms McGill said.

“If approved, the BFX option could lift production capacity to 330 ktpa and move Olympic Dam into the first quartile of the cost curve, which is where we strive to be with all our assets at BHP,” she said.

BHP Minerals president Mike Henry said the Brownfield Expansion option had the potential to deliver sustainable returns to shareholders, the local community and to government. But a possible expansion would “have to compete against other options within the portfolio, as well as the option of returning funds to shareholders,” he said.

The potential $US2.1 billion investment at Olympic dam, 45 per cent of which would relate to mine development, excludes study costs of $US240 million ($315 million). The mooted expansion will be closely watched by investors.

Morningstar resources analyst Mathew Hodge said the latest plan to expand Olympic Dam was vastly lower than a multi-billion dollar plan to expand it via an open-pit mine operation proposed a few years ago.

“I think the way they seem to be going is making smaller bets generally. And I think that behaviour is good,” he said.

“Philosophically I think it’s a lower risk approach, and I think it’s the right way to go by focusing more on getting a higher return on your invested capital, rather than trying to maximise NPV (net present value) which can mean there’s a lot more capital at risk and there can be a significant dislocation between financial model and reality,” he said.

“Brownfield expansions tend to be higher incremental return, because you’re utilising the assets that you’ve got – you may be driving more volume across that fixed cost base. And they tend to be more capital efficient as well, generally speaking. Lower risk because you’ve already got a presence there and you’re operating. I think generally that approach is the way to go,” he said.