BHP Billiton set to expand Pilbara iron ore operations – by Matt Chambers (The Australian – August 25, 2014)

BHP Billiton chief executive ­Andrew Mackenzie says iron ore prices are unlikely to climb back above $US100 a tonne but the company is readying to spend an extra $US3.25 billion ($3.5bn) to bring more ore on to the market in a bigger-than-expected expansion of its West Australian mines.

As iron ore prices last week slid to about $US90 a tonne and approached five-year lows, Mr Mackenzie said he was not counting on a price floor forming.

At the same time, in a declaration largely lost amid BHP’s plans for a $US14bn spin-out of non-core assets, the world’s biggest miner says it is looking to expand its Pilbara iron ore mines and ports to annual capacity of 290 million tonnes a year.

This is up from a previous target to grow to 270 million tonnes and at a forecast capital cost that is dramatically lower than guidance given to analysts a year ago.

“We would say it is quite unlikely that we would see prices north of $US100 a tonne, so our forecasts are obviously based on something below that,” Mr Mackenzie told British media when asked if there might be a price floor around current price levels.

Despite the downbeat outlook for a commodity that averaged $US135 a tonne last year, BHP looks more likely to go ahead with its planned expansion, which will be on top of plans to boost output to 225 million tonnes a year. This, combined with the company’s low operating costs of about $US40 a tonne, means ­prices would have to fall lower than anyone was predicting for the expansion to not look attractive.

On Friday night, iron ore ­prices slipped $US1.80 to $90.10 a tonne as Chinese steel mills continued to run down iron ore inventory amid low steel prices, uncertain demand and expanded production from BHP, Rio Tinto and Fortescue Metals Group.

The iron ore price, which has shed $US45 a tonne this year, is only at a two-month low. But if it fell another $US1.20, it would be at a two-year low, and if it dropped below $US86.70, it would be at its lowest since 2009.

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