BHP shelves Peak Downs expansion, looks forward

BHP Billiton will shelve its planned 2.5 million tonne per annum expansion of the Peak Downs mine in Queensland but will continue with the $US2.1 billion Caval Ridge project as it seeks to ramp up overall production by 50% by 2014.
BHP shelves Peak Downs expansion, looks forward BHP shelves Peak Downs expansion, looks forward BHP shelves Peak Downs expansion, looks forward BHP shelves Peak Downs expansion, looks forward BHP shelves Peak Downs expansion, looks forward

BHP Billiton Illawarra Coal's Dendrobium mine in NSW.

Lou Caruana

While the company’s Queensland operations have been beset by industrial and geotechnical issues, it continues to have high hopes for Caval Ridge and its New South Wales Illawarra Coal operations, with $845 million earmarked for the Appin expansion project.

While revenues were steady for met coal at $7.5 billion for the year to June 2012, EBIT plunged by 41% to $1.5 billion.

Higher costs, excluding the impacts of inflation, exchange rate volatility and non-cash items, reduced underlying EBIT for the entire BHP Billiton group by $2.7 billion in the 2012 financial year, the company said.

Labour and contractor cost increases accounted for approximately one third of the impact while industrial action at Queensland Coal created additional pressure.

“Production at Queensland Coal remained constrained largely as a result of industrial action, weather related downtime and geotechnical issues at Gregory Crinum,” BHP Billiton said.

“Record annual production at Illawarra Coal followed successful commissioning of the West Cliff coal preparation plant upgrade project.”

The progression of its development pipeline also led to an increase in exploration and business development costs in the period.

Following a review of the Norwich Park mine’s profitability, BHP Billiton announced the indefinite closure of this operation during the June 2012 quarter and is currently reviewing the viability of its other high-cost operations.

“Despite these actions, the capacity of our Queensland Coal business is expected to rise substantially by the end of the 2014 calendar year as all other projects remain on schedule and budget,” the company said.

“BHP Billiton announced approval of the $845 million Appin Area 9 project in the period. This underground development is expected to sustain Illawarra Coal’s production capacity at nine million tonnes per annum with first production anticipated in the 2016 calendar year.”

In July 2012, force majeure was lifted across all BHP Billiton Mitsubishi Alliance sites. BMA and the unions reached a framework agreement that should guide the finalisation of the BMA enterprise agreement. Further work was underway to finalise local mine site details, the company said.

BHP Billiton’s energy coal division fared better than its met coal business, reporting a 9.4% increase in annual revenue to $6 billion and a 8.7% increase in EBIT to $1.2 billion.

Its NSW Energy Coal RX1 project delivered first production during the June 2012 quarter, significantly ahead of schedule. The project capitalised on strong demand for high ash coal in key growth markets, the company said.

Stronger volumes and a higher proportion of export sales, largely associated with improved rail performance at BECSA (South Africa) and the accelerated expansion of NSW Energy Coal, increased underlying EBIT by $152 million during the year.