BHP Billiton (BHP) Sanctions $2.5B For SGO Copper Plan

BHP Billiton (LON:BLT) Limited (NYSE:BHP) recently sanctioned $2.5 billion capital expenditure project for extending the life of its Spence open-cut copper mine by more than fifty years. The investment is for the company’s Spence Growth Option (SGO) project and is in sync with its strategy to sound copper production moving ahead. However, share price of the company has remained nearly flat at $40.40, following the new release on Aug 17, 2017.

In the last three months, shares of this Zacks Rank #3 (Hold) stock yielded a return of 9.5%, outperforming 8.6% gain recorded by the industry.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Inside the Headlines

BHP Billiton has extensively inspected the SGO project and made remarkable improvements to project design and cost. The company claimed that the anticipated internal rate of return of the SGO project is 16% and payback tenure would be 4.5 years, from the first production.

In the initial 10 years of operation, the incremental production from SGO project would be nearly 4 kilo-tons per annum (ktpa) of payable molybdenum and 185 ktpa of copper in concentrated form. Notably, the initial production of SGO project would likely be accrued in BHP Billiton’s 2021 financial year.

While the existing copper cathode stream of the mine would continue operations until the 2025 financial year. The entire SGO project would translate 1.3 billion tons of Measured and Indicated Mineral Resources to hypogene sulphide ore reserves.

BHP Billiton also proclaimed that the SGO project would create 5,000 additional jobs during its entire construction phase. The entire project includes engineering, construction and design of a conventional massive-scale sulphide concentrator, for both molybdenum and copper extraction. The nominal ore throughput capacity of the concentrator would be 95 kilo-tons per day.

Moreover, the project even calls for the construction of a 154 kilometers water pipeline from the Spence mine site to the plant as well as a new 1,000 liter per second desalination plant, in the Mejillones Bay. However, these two construction activities would be conducted by a third-party contractor, under a separately awarded Build, Own, Operate and Transfer deal.

Our Take

Gradual recovery of iron-ore prices is likely to benefit major mining companies like BHP Billiton, Rio Tinto (LON:RIO) plc (NYSE:RIO) , Vale S.A. (NYSE:VALE) and Cliffs Natural Resources Inc. (NYSE:CLF) . In the last three months, prices of this major steel making component were up nearly 20.1% to $75.2 per ton as of Aug 18, 2017. The upside stemmed from the release of Chinese manufacturing data, which revealed expansion of the country’s steel industry.

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