BLOG
February 21st, 2024
Via the Financial Review, a report on BHP and the South Australian government plans for a multibillion-dollar desalination plant to accelerate copper mining in the region:
BHP and the South Australian government are close to finalising talks over a multibillion-dollar desalination plant for the Upper Spencer Gulf as the miner grows more confident in its ability to deliver a 55 per cent production boost at its nearby copper mines.
Reporting a $US6.6 billion ($10.1 billion) underlying profit for the six months to December 31 on Tuesday, BHP outlined a clearer pathway to grow its SA copper division to produce more than 500,000 tonnes of the metal each year.
The SA copper division was bolstered last year by the $9.6 billion acquisition of OZ Minerals and the merged assets will produce between 310,000 and 340,000 tonnes of copper this year. BHP would need to invest in a new smelter at Olympic Dam to grow output to 500,000 tonnes a year, and said it was investigating new smelting technology that would have double or potentially triple the capacity of its existing smelter.
BHP said an investment decision on a smelter upgrade could come as soon as 2026.
The 500,000 tonnes per year growth target is the biggest the company has floated for SA copper in the 12 years since it abandoned a $30 billion open pit proposal for Olympic Dam.
Water has long been a handbrake on mining growth in the region, with Olympic Dam’s extraction of groundwater from the Great Artesian Basin straining relations with some Indigenous groups, who place great significance on bubbling springs in the region.
Construction of a desalination plant near Port Augusta is expected to partially solve BHP’s water challenges, and the miner is expected to be announced in coming days as an anchor customer for the Northern Water facility proposed by the SA government.
SA Premier Peter Malinauskas is expected to travel to the Spencer Gulf region in the next week, where his government is hopeful of using the same desalination project to stoke development of a local green hydrogen industry.
BHP and Rio Tinto have previously built their own desalination plant in Chile to reduce the Escondida copper mine’s take from groundwater supplies in the parched high deserts of the Andes mountains.
Rio last year announced plans to spend close to $600 million building a desalination plant in the West Pilbara region of Western Australia.
While prices for other “future facing” metals like nickel, lithium, cobalt and graphite have slumped over the past year, copper prices have been more resilient.
BHP’s average received copper price over the past six months was $US3.66 per pound, 5 per cent better than last year and 44 per cent higher than in 2019.
BHP’s vice president of market analysis, Huw McKay, said supply disruptions – such as the sudden closure of First Quantum’s Cobre Panama mine – had improved the outlook for copper prices and led his team to think a shortage could persist this year.
Dr McKay had previously forecast a surplus of copper in the middle of this decade before pronounced shortages took hold toward the end of the decade. On Tuesday, he said the shortages at the end of the decade could become even more pronounced if the predicted oversupply of copper in the middle of the decade did not eventuate.
Copper from SA delivered $US232 million of underlying earnings to BHP over the past six months, up from $US62 million in the same period of last year.
BHP’s entire copper division, which is dominated by Escondida, delivered $US2.4 billion of underlying earnings in the year, up from $US1.9 billion last year.
BHP shareholders will receive a US72¢ interim dividend worth collectively $US3.6 billion, higher than the US69¢ per share expected by analysts surveyed by VUMA.
But the dividend was lower than last year’s US90¢ interim payout and represents the lowest half-year dividend since February 2020.
Western Australia’s Pilbara region was again the biggest contributor to BHP’s accounts, delivering more than 77 per cent of underlying earnings in the period.