BHP’s board of directors has given the green light to spend $US2.9 billion ($3.8 billion) developing its South Flank iron ore project in Western Australia’s Pilbara, delivering 2,500 construction jobs and 600 full-time operational roles.
Australia’s biggest miner said the South Flank mine, which will produce its first ore in 2021, would replace production from its 80-million tonnes-per-year Yandi operation, which is nearing the end of its mine-life.
BHP Minerals Australia operations president Mike Henry said the project, which BHP has an 85 per cent stake in, offered attractive returns, and also aligns the company closer to China’s desire for higher-quality ore to limit pollution from its steel industry.
“It will enhance the average quality of BHP’s Western Australia iron ore production and will allow us to benefit from price premiums for higher-quality lump and fines products,” Mr Henry said in a statement to the ASX.
BHP's Japanese partners Itochu Corp, with an 8 percent stake, and Mitsui & Co Ltd, with 7 percent, will spend $US270 million and $US240 million respectively, bringing the total development cost to $US3.4 billion.
The South Flank operation is expected to produce ore for the next 25 years.
The company said the operation would increase the average grade for its WA iron ore to 62 per cent, from 61 per cent.
Chinese-owned CIMIC Group's subsidiary, CPB Contractors, will deliver bulk earthworks, concrete and underground services for the mine, under a $260 million contract which will commence in July.
CIMIC chief executive Michael Wright said the company was pleased to continue to contribute to Australian mining.
"The South Flank development works will help to ensure that the mining Area C precinct becomes one of the largest standalone iron ore processing centres in the world, and it is our privilege to again be working with BHP to deliver high-quality assets of long-term value," Mr Wright said.
BHP’s announcement is the second major iron ore operation to garner board approval in recent weeks in WA’s Pilbara, following Fortescue Metals Group’s late May announcement that it would spend $US1.3 billion developing its Eliwana mine.
Production at Eliwana is expected to begin in late 2020, with the operation also expected to yield higher quality ore for the miner, close to the benchmark of 62 per cent iron content.
FMG said Eliwana would create up to 1,900 jobs during construction and 500 full-time positions once operational.
Global iron ore giant Rio Tinto is also ramping up its Pilbara operations, with its Silvergrass mine, which came into operation in August last year, building up to nameplate capacity.
Earlier this year Rio Tinto said its Pilbara iron ore production rose 8 per cent in the March quarter, to 83.1 million tonnes.
Rio Tinto is also expected to decide soon on whether to build its Koodaideri mine in Australia at an estimated cost of $US2.2 billion.
Mr Henry said BHP had a slight head start in securing equipment for its project.
"We are going to see a bit of pressure in the market as a result of multiple projects being pursued at the same time. We're pretty well positioned, given the timing of our full sanction," he said.