BHP Is Slashing Costs At Its Iron Ore Mines By 25%

Iron ore.

BHP will cut costs at its Western Australia iron ore mines by at least 25% and increase capacity by 65 million tonnes per year.

The response to plummeting iron ore prices was given by Jimmy Wilson, BHP Billiton’s president of iron ore.

He sees healthy demand growth for iron ore in the mid-term with Chinese steel production expected to increase by about 25% to between 1 billion tonnes and 1.1 billion tonnes in the early to mid-2020s.

And steel production growth in other emerging economies is outpacing China as those nations urbanise and industrialise.

BHP expects a compound annual growth rate for global steel production of between 2.5% and 3% between now and 2030.

“Unsurprisingly, high prices over the last decade created the incentives needed for new entrants to join the market and traditional producers to substantially increase supply,” he says.

“As a result, growth in seaborne supply is expected to exceed growth in demand over the short to medium term.”

Anticipating this more than two years ago, BHP turned its focus from major supply chain investment to productivity, cost reduction and capital efficient growth.

BHP’s iron ore operations consist of four main joint ventures: Mt Newman, Yandi, Mt Goldsworthy and Jimblebar.

Wilson expects cash costs of less than US $20 per tonne in the medium term, a reduction of more than 25% on the average achieved in the 2014 financial year.

“We aim to be the lowest cost supplier to China on an all-in cash basis,” he says.

BHP Billiton could add 65 million tonnes of capacity at a capital intensity of approximately US $30 per annual tonne, taking total system capacity from 225 million tonnes a year to 290 million tonnes by the end of the 2017 financial year.

“The economics of further increasing our production are compelling,” WIlson says.

This week the Company is hosting investors and analysts on a tour of major hubs in Western Australia.

Iron Ore’s contribution to BHP.

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