BHP will sink $3.8 billion into a new iron ore mine in Western Australia

Jie Zhao/Corbis via Getty ImagesIron ore in China.
  • BHP has decided to go ahead with a new iron ore mine in Western Australia.
  • The world’s biggest miner today approved $US2.9 billion ($3.88 billion) in capital for the South Flank project.
  • The mine will create 2,500 construction jobs and 600 ongoing operational roles.

BHP today approved $US2.9 billion ($3.88 billion) for the South Flank iron ore project in the central Pilbara, Western Australia, creating 2,500 construction jobs and 600 ongoing operational roles.

The mine, whose ore has a higher concentration of iron, will replace production from BHP’s 80 Mtpa Yandi mine which is reaching the end of its economic life.

“South Flank is a capital efficient project which offers attractive returns, and which was approved following a thorough evaluation under BHP’s Capital Allocation Framework,” says Mike Henry, BHP President Operations, Minerals Australia.

“It will enhance the average quality of BHP’s Western Australia Iron Ore (WAIO) production and will allow us to benefit from price premiums for higher-quality.”

China, the main market for Australian iron ore, is demanding higher quality ore for its steel-making industry.

RBC Capital Markets’ mining analyst Paul Hissey says South Flank ore is expected to lift average grades at the company’s Western Australia iron ore mines.

“This is timely given the current dynamics in the iron ore market, with higher-quality products attracting premiums to benchmark prices,” he says.

BHP says the iron ore South Flank will from contribute to an increase in average iron grade to 62% from 61%.

Mining companies are currently enjoying near boom time profits, on the back of cost cutting, low capital expenditure, and healthy commodity prices.

In the latest official statistics, Australian miners were the standouts for company profits. Overall company operating profits rose by 5.9% in the March quarter after rising 2.8% in the three months to December. Profits were up 5.8% for the year.

The South Flank project, 85% owned BHP, involves construction of an 80 Mtpa crushing and screening plant, an overland conveyor system, stockyard and train loading facilities, procurement of new mining fleet and substantial mine development work.

First ore from South Flank is targeted in the 2021 calendar year, with the project expected to produce ore for more than 25 years.

BHP in June last year approved an initial funding commitment of $US184 million for the expansion of accommodation facilities to support current and future workforce requirements.

BHP’s iron ore resources in the Pilbara:

Source: BHP

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