BACK ON TRACK
Olympic Dam had mixed results in FY18 as a result of smelter issues as well as a planned rolling shutdown. However, BHP is back on track, pushing ahead with expansion projects and potentially game-changing innovations that could decrease costs while doubling production.
GROWTH plans for BHP’s Olympic Dam were back on track following a slower than planned ramp-up after its major smelter upgrade earlier this year and ongoing technical issues.
The major smelter maintenance upgrade was the largest planned shutdown ever undertaken in Olympic Dam’s 30 year history, running from August 2017 until February 2018.
Other major upgrade work was carried out on the refinery, concentrator and site technology to ensure the ongoing reliability and safety of the Olympic Dam operation.
The $350 million project involved a planned rolling shutdown with up to 1300 contractors working around the clock to dismantle, rebuild and upgrade integral components of the facility.
Despite the smelter upgrade’s successful completion in early 2018, BHP confirmed in August 2018 that the failure of several boiler tubes at the acid plant had caused technical issues.
In its full year earnings release, BHP stated remediation and mitigation activities were underway, and underground mining operations were continuing as normal.
The issues were expected to hinder production for about two months.
BHP chief executive Andrew Mackenzie said Olympic Dam was the one part of the business BHP wanted to get to previous levels of return since selling its US onshore oil and shale gas business to energy giant BP and Merit Energy in July.
“I accept that we have a lot to do to build confidence in Olympic Dam, but this is something that we can really concentrate on now as an organisation since we’ve cleared almost everything else off our table other than just making the most of this tremendous portfolio we’ve now got,” Mr Mackenzie said.
“We have seen a considerable improvement in our development rates in the Southern Mine Area and that has put our growth plans that we have for Olympic Dam back on track.
“It will absolutely have the focus of the best and brightest in BHP to make that happen.”
Guidance for Olympic Dam was reduced to about 135,000t from the previous 150,000t following the slower than planned ramp-up.
However, in its annual report released on 18 September, BHP announced Olympic Dam had slightly exceeded the revised guidance for the full FY18 at 137,000t.
In its September quarter operational report, released on 17 October, BHP announced its copper guidance for FY19 would be reduced by 3 per cent following the Olympic Dam outage, as well as an electro-winning plant outage at its Spence operation in Chile.
It stated Olympic Dam copper production had decreased in by 21 per cent to 33,000t in the September quarter as a result of the outage in August.
As a result, production guidance for FY19 was reduced from between 200,000 and 220,000t to between 170,000 and 180,000t.
Production was expected to increase as development into the higher-grade Southern Mine Area (SMA) continued.
The move into the SMA would increase copper grade to 3 per cent by the 2023 financial year, which is when BHP anticipated the copper market to enter a structural deficit.
SMA was a key foundation for sustainable future growth for BHP, accounting for about 70 per cent of the Olympic Dam future orebody.
BHP began development in the site in 2014 and produced first ore late last year.
Plans to develop a low-cost heap leaching technology in order to double mine output to 450,000 tonnes of copper per year by 2023 were also progressing well.
While doubling output, the heap leach copper extraction process was also expected to be far more cost-effective, with capital costs expected to be about 20 per cent lower than traditional mining methods.
Operating costs were also expected to be lower.
The first copper cathode was produced from the heap leach research and development trials in September last year.
A series of larger scale experiments and testing on the heap leach process were expected to continue over the next two years.
As one of the world’s most significant deposits of copper, gold, silver and uranium, BHP considers Olympic Dam to be a multi-generational resource, and has a number of plans to fully unlock its potential.
BHP was also progressing plans on a $2.1 billion expansion of its Brownfields copper deposit, known as the BFX.
If approved the BFX would increase output to between 280,000t to 330,000t per year in the medium term and move Olympic Dam into the first quartile of the cost curve.
BHP was working towards board approval of the BFX at Olympic Dam in mid-2020.
First incremental production was targeted in late 2021 and project ramp up and completion was targeted for the following year.
Light Electronic Vehicles Deployed
In further developments at Olympic Dam, BHP unveiled its first light electric vehicle in June (LEV) as part of a trial, which could lead to the replacement of its existing underground fleet of 240 diesel-powered light vehicles.
A second LEV was expected to follow later in the calendar year.
As part of its day-to-day operations, Olympic Dam relies on a team of about 800 underground employees and uses diesel equipment for development, production, ore handling and mine services.
Although LEVs look similar to a traditional Land Cruiser or ute, BHP believed the vehicles were at the heart of the company’s work on low emissions technology.
As LEVs are battery-powered, mine workers at Olympic Dam could expect their exposure to the diesel particulate matter generated by traditional diesel engines to be significantly reduced.
In an announcement on 27 June, BHP said the trial was part of a broader initiative aimed at achieving a 50 per cent reduction in the number of employees with potential exposure to particulate matter.
BHP said Olympic Dam’s switch to LEVs in its operations would reduce emissions, exposure and costs, as well as influencing the rollout of similar initiatives in its other locations.
During the trial, BHP will collect data on the vehicles’ performance, power supply, maintenance requirements, charging time and corrosion resistance underground.
A wider deployment at Olympic Dam was expected to be made during FY19.
Olympic Dam is 560km north of Adelaide and is made up of underground and surface operations, as well as a fully integrated processing facility from ore to metal.
The mine is made up of more than 450km of underground roads and tunnels.
BHP’s expansion and improvement projects have come as copper has taken a bearish turn in recent months, plunging by 20 per cent to a 14 month low of about $US6000 per tonne in early August.
According to BHP’s full year earnings release, copper prices rose over the 2018 financial year, with gains in the first half sustained for most of the second half.
The average realised price for BHP’s copper in FY18 was $US3.12 per pound.
Broad-based demand strength and the threat of supply disruption both contributed to the improvement in prices.
However, the rise in trade tensions pushed copper prices down early in FY19.
Grade decline, increased input costs, water constraints and a scarcity of high-quality future development opportunities would require attractive prices to secure sufficient investment to balance the market, with new mine supply required in the early part of the next decade.
Copper production for the 2018 financial year increased by 32 per cent to 1.7mt largely due to a full year of production at Escondida, supported by the ramp-up of the Los Colorados Extension project and record production at Spence, in Chile.
This more than offset reduced volumes at Olympic Dam as a result of the planned smelter maintenance project.
According to the Department of Industry, Innovation and Science’s September Resources and Energy Quarterly, US-China trade tensions played a significant role in the recent decline.
Instability in copper prices had been further exacerbated by events in Turkey, where high current deficits and a government freeze on interest rates have led to a currency crisis.
Despite the recent decline, rising demand was expected to gradually reverse this fall, with prices expected to rise from $US6726 a tonne in 2018 to $US7734 by 2020.
Global copper consumption was projected to rise from 24.5 million tonnes in 2018 to 25.7 million tonnes by 2020.
The forecast higher copper consumption reflected solid growth in global industrial production and a ramp-up in the development of copper-intensive technologies.
According to the department higher production and modest growth were expected to increase Australia’s copper export earnings from $8.5 billion in 2017-18 to $10.5 billion in 2018-19.
Further price growth was then forecast to push earnings up to $11.3 billion by 2019-20.
The department believed the long-term prospects for Olympic Dam remained strong, despite the mixed results caused by the smelter issues.
Olympic Dam has ramped up to normal production levels following a smelter upgrade earlier in the year.