BHP to splash $3.1bn at Spence copper mine in Chile
BHP has set one of its biggest capex commitments in years to develop the Spence copper mine.
Mining giant BHP will pump $US2.46 billion ($3.1bn) into an expansion of its Spence copper mine in Chile, in what is one of its biggest capital expenditure commitments in years.
The company late on Thursday announced the long-awaited expansion which will add another 50 years to the mine life of Spence and boost its annual copper production by around 185,000 tonnes of copper over the first decade of the expanded operation.
BHP has long been hungry to grow its copper production amid a promising demand outlook for the metal.
In a statement, BHP chief executive Andrew Mackenzie said the Spence extension would create long-term value in one of the company’s preferred commodities.
“The project significantly extends the life of our Spence operation and unlocks the potential of the large, quality resource,” Mr Mackenzie said.
The Spence Growth Option, or SGO, had long shaped as one of the more promising development projects in BHP’s portfolio. The company expects the project to generate an internal rate of return of 16 per cent and an expected payback period of 4.5 years from first production.
The project will create up to 5,000 jobs during its construction phase.
Mr Mackenzie said the project has benefited from the lessons picked up during the construction of a new concentrator and desalination plant at its Escondida joint venture elsewhere in Chile.
“SGO has been extensively studied and we have made significant improvements to project cost and design so that it is able to compete in our portfolio of attractive development options,” Mr Mackenzie said.
The Spence expansion will be supported by a new desalination plant to be built and operated by a third party. BHP has committed to a 20-year lease nominally worth $US1.43bn.
In a research note released on Thursday ahead of the BHP announcement, analysts at UBS described the Spence Growth Option as “the most attractive” of BHP’s large growth projects, ranking it ahead of the likes of the Jansen potash project in Canada and the Mad Dog 2 oil expansion in the Gulf of Mexico.
The $US2.46bn commitment at Spence is BHP’s largest single capital expenditure decision since February, when it announced it had approved a $US2.2bn investment in Mad Dog phase 2.
The final budget for the Spence Growth Option is slightly higher than that originally flagged by the miner on a site visit to the project back in 2015. In that instance, the company said it expected the project would cost around $US2.2bn.
It is understood the change relates to the impact of foreign exchange rate changes in recent years.
BHP’s growth plans and capital allocation decisions have come under intense scrutiny in recent months amid pressure on the company from US activist fund Elliott Management. The Paul Singer-led group earlier this week announced it had taken its interest in BHP’s London-listed shares beyond the 5 per cent mark.
Spence sits some 1700m above sea level in the Atacama desert region of northern Chile, northeast of Antofagasta.