BHP Billiton looks to catch up to Rio Tinto

He attributes about $US5 per tonne of the difference to BHP‘s spike in strip ratios at Newman and the recently opened Jimblebar ($US1 to $US2 a tonne), the use of mobile crushers during the period ($US1 to $US2 a tonne) and full expensing of expansion costs ($US1 a tonne). ”We think BHP can close the gap by $US3 to $US5 a tonne by reversing these items, and can lower unit cost further as its average strip ratio is lower, it has fewer mines and has no wet processing,” Mr Young said. ”But, we think Rio can drive costs down at least another $US2 to $US3 a tonne ($US600 million to $US900 million benefit) through automation, and further benefits from economies of scale, blending and newer mines.

But to raise production beyond 270 million tonnes a year, BHP will need either to tap options for two additional berths in the inner harbour in Port Hedland in a $US600 million to $US800 million development, or resurrect the $20 billion outer harbour project. ”We want to max out the inner harbour, then we’ll go to the outer harbour,” Mr Wilson said. ”[But] putting additional capacity into the inner harbour is quite unlikely.

Mr Young puts the other $US5 of the unit cost differential down in the main to Rio’s greater economies of scale, shorter haul distances, lower mining costs and its blending facilities at port, which means no double-handling at mining hubs. ”Also Rio is three to five years ahead on automation, its ports are not tidal constrained and it has a superior product with the Pilbara blend,” Mr Young says.

Read more here: SMH


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