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BHP Billiton is set to ramp up its West Australian iron ore mines, rail and ports to full capacity quicker than previously flagged as a two-year rail system overhaul looks set for completion in little more than a year.
The extra rail capacity could deliver up to an extra 10 million tonnes of iron ore sales in the next two years, more than offsetting the impacts of power outages and unplanned maintenance at the Olympic Dam copper and uranium mine in South Australia, which caused a 40,000-tonne cut in copper guidance this year.
In its quarterly production report, released yesterday, BHP said that an extensive overhaul of the company’s big private Pilbara region railways, ordered by Australian mining president Mike Henry in March last year as one of his first edicts in the position, was moving at a cracking pace.
“The rail renewal and maintenance program, which will support the supply chain’s long-term reliability, is progressing ahead of schedule and is now expected to be completed in the June 2017 quarter,” BHP said.
When it was announced in April last year, the rail overhaul was slated to be a two-year program that would have been finished in the March quarter of 2018.
While BHP has made no change to its official guidance of boosting West Australia exports to 290 million tonnes a year (including minority partners’ share) by June 2019, the expected early completion of the maintenance should bring this forward.
Yesterday, BHP announced record quarterly iron ore production (including partners’ share) of 69.7 million tonnes and said it was on track to meet 2016-17 guidance of between 265 million tonnes and 275 million tonnes. BHP already has the mine capacity to reach 290 million tonnes and needs only minor work at its Port Hedland harbour to meet the targeted capacity.
The rail overhaul was not planned under former iron ore boss Jimmy Wilson, but Mr Henry has said it was needed to ensure the railway was capable of running with a higher degree of reliability.
Analysts have estimated the rail works were restricting up to 10 million tonnes of annual capacity, which would represent $US820 million ($1.09 billion) of revenue at current iron ore prices, which are up nearly 50 per cent in the past four months.
“We have performed well during a period of higher prices, with record iron ore volumes achieved at Western Australia iron ore,” BHP chief Andrew Mackenzie said.
“Our simpler organisational structure has freed our assets to focus on what matters most and to deliver safer and more productive operations.”
Analysts at Citi and RBC said that other than the iron ore result, the production report had been softer then expected. Still, BHP shares jumped 88c, or 3.3 per cent yesterday to a 19-month high of $27.89, as mining stocks rallied on improved sentiment and commodities prices. Rio finished 3.8 per cent higher.
BHP lowered full-year copper guidance by 2 per cent, or 40,000 tonnes, to 1.62 million tonnes — representing $US230m of lost revenue — because of the Olympic Dam outages and unplanned maintenance on a refinery crane earlier this month.
The company said that prices of all 10 commodities it produced had increased in the first half, from the previous half, with the exception of liquefied natural gas.
Also in the report, BHP said it planned to increase its offshore oil and gas exploration budget for next year by $US120m to $US820m after a successful bid for the Trion discovery in Mexico and positive drilling results in the Caribbean and US Gulf of Mexico.
As flagged in The Australian last month, the Burrokeet well off the coast of Trinidad and Tobago did not yield a discovery.
BHP said it would increase US onshore gas production by adding another drill rig and hedging the prices it can receive.
This article first appeared on www.theaustralian.com.au
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