BHP and Rio Tinto in $4.5bn copper expansion
BHP Billiton and Rio Tinto have raised their bets on global copper demand, approving plans for a $4.5bn expansion of the massive Escondida mine in Chile, while BHP plans to reopen a US copper mine idled three years ago.
The two miners are already spending billions of dollars expanding output at their Australian iron ore mines to feed Chinese demand, and the push to boost output by 80 percent at the world’s biggest copper mine underscores their optimism about longer term demand for metals.
The price of copper, seen as a bellwether for industrial demand, has fallen 17 per cent from record highs above $10,000 a tonne a year ago, but is still more than double the level reached in the depths of the global financial crisis.
“The market wants more copper,” said UBS analyst Glyn Lawcock, pointing to tight global supplies of the metal used for everything from power transmission to plumbing.
The $4.5 billion investment at Escondida, where production last year fell 25 per cent due to declining ore grades, has been well flagged, but BHP’s decision to start mining again in late 2012 at Pinto Valley in Arizona came as a surprise.
“They must be happy with the outlook for copper and the cost structure of that asset,” said Ric Ronge, a portfolio manager at Pengana Capital, which owns BHP shares.
Analysts said cheaper energy prices in the United States had probably helped to justify the planned $195m investment to restart the mine, at a capacity of 60,000 tonnes a year, in what the major miners see as a tight market in the medium term.
“It’s probably fair to assess that you’re going to see similar sorts of things from a number of companies who have operations that have been sitting idle waiting for the right environment,” said UBS’s Lawcock.