BHP Billiton's faith in emerging markets Sarah-Jane Tasker From: The Australian March 28, 2011 12:00AM Increase Text Size Decrease Text Size Print Email Share Add to Digg Add to del.icio.us Add to Facebook Add to Kwoff Add to Myspace Add to Newsvine What are these? BHP Billiton's decision to invest $US400 million ($390m) to expand energy coal operations in NSW reveals its growing confidence in emerging Asian and Indian energy markets.
The RX1 project expansion, which was revealed on Friday but overshadowed by much larger iron ore and coking coal investments, will enable Mount Arthur Coal's run-of-mine thermal coal production to increase by 4 million tonnes a year to about 24 million tonnes a year.
According to BHP, RX1 is substantially a mine-only expansion, without an associated increase in coal preparation plant capacity.
Group executive and chief executive, ferrous and coal, Marcus Randolph said the energy coal spending was a "short-term opportunistic move".
"As we develop the higher ash market in India and Southeast Asia, the idea in energy coal is that we will grow the mining capacities," he said.
Start of sidebar. Skip to end of sidebar. End of sidebar. Return to start of sidebar. "Effectively, run-of-mine coal will be sold into the market, and it is actually built off the premise that the market is allowing these kinds of slightly lower calorific value and higher ash products to find a home.
"In subsequent expansions, we would expect to add both mining capacity and processing plant capacity. So we will ultimately process this coal, but we have an opportunity today to take advantage of a short-term opportunity and get into the market quick."
BHP energy coal president Jimmy Wilson said the emergence of demand for coal in the key growth markets allowed the miner to get the product to market quickly.
"Importantly, the RX1 project will take advantage of existing port capacity, and future expansion options will be supported by Mount Arthur Coal's large, low-cost resource and the ability to expand the coal processing facilities," he said.
Although analysts were positive about the announcements, one of the key messages was the rising cost of the major iron ore expansion, which the miner said would be around $US180 a tonne.
A $US7.4 billion iron ore expansion announced on Friday, of which BHP's share is $US6.6bn, will rapidly increase operations in Western Australia's Pilbara region, with mine, rail and port developments to support an expansion to more than 220 million tonnes a year.
BHP's cost of expansion is higher than plans by Pilbara rivals: Rio Tinto's production increases will cost about $US130 a tonne, and Fortescue Metals Group has suggested it can lift its output at about $US84 a tonne.
Mr Randolph said capital intensity in the sector was something that "a lot of people haven't really wanted to talk about".
"I think where we are is probably about where the industry is on an all-end basis, and we will see how that plays out as we go forward," he said.
"But I have some degree of scepticism when I hear numbers that are substantially lower than where we are."
BHP also announced on Friday a $US5bn plan for Queensland coal projects.
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