BHP says building mines to become cheaper than buying
April 3, 2009
BHP Billiton, the world's biggest mining company, may develop new copper mines rather than acquire them because of falling costs, said Diego Hernandez, the president of the company's base metals division.
The cost of developing a copper mine is decreasing as energy and materials become cheaper, Hernandez said yesterday in an interview in Santiago. Construction costs may become as attractive as buying companies within six-months, he said.
"Looking at the market the obvious conclusion is that we will see some distressed companies that will have to dispose of good assets," Hernandez said. "But in fact we have not seen" any opportunities, he said.
BHP which owns the Escondida copper mine in Chile, the world's biggest, is working on developing new mines in Africa, central Asia, Peru and Chile, Hernandez said. The cost of developing a project in Chile may return to pre-2004 levels of 4 to 6 cents per pound of copper production a year, compared with about 12.5 cents a pound now, he said.
Decisions on expansions to Escondida will probably be taken after 2009 because of a lack of credit and a need to preserve cash flow, he said.
"For big projects, the mining companies will need to go back to project financing and there is not too much available yet," he said. are starting to look forward and things are looking better."
Copper futures for May delivery jumped 4.1 cents, or 2.2%, to $1.89 a pound yesterday on the New York Mercantile Exchange's Comex division, the highest close for a most-active contract since Nov. 4.
Copper prices will average about $US1.60 a pound this year as Chinese demand for the metal recovers, Hernandez said.
BHP will close a damaged mill for a 45-day period in July and August. The mill will return to full capacity in late August, Hernandez said.