BHP unfazed by iron ore price plunge as new South Flank mine officially opens

BHP has shrugged off the spectacular steel making commodity price slump, saying margins at its massive new mine in WA are ‘healthy’.

Australia’s biggest new iron ore mine in more than 50 years has officially opened and while it would appear the timing could be better, the behemoth operating it is unfazed.

BHP began production at its $US3.6bn ($A4.98bn) South Flank mine, 56km northwest of Newman in Western Australia’s Pilbara region, in late May - shortly after the iron ore price hit a record $US233 per tonne.

The price has recently rebounded modestly, currently sitting around US$116/t, which is still a decent amount given the miner in August flagged its 2021-22 costs of production would be just $US17.50 to $US18.50 per tonne.

But some analysts are tipping a bigger fall in coming months and years as China curbs steel production in a bid to reduce its carbon emissions, in particular, seeking blue skies for the Winter Olympics in Beijing in February.

UBS last month forecast a price for Australia’s most important export below $US100/t by the end of this calendar year and an average $US89/t in 2022, given supply is set to lift, with Guinea poised to add 100-200 million tonnes (Mt) from 2025/26, and as steel scrap in China increasingly displaces iron ore demand.

But BHP iron ore asset president Brandon Craig isn’t worried to be now ramping up production at South Flank, an 80Mt per annum (Mtpa) operation.

South Flank is 9km to the south of BHP’s existing Mining Area C and combined, the two operations are set form the world’s largest operating iron ore hub, producing a whopping 145Mtpa.

“For the cost performance of this mine, it is very competitive even at iron ore prices that we’ve seen today,” Mr Craig told reporters on Thursday.

“It’s a healthy margin.”

Blasting at the South Flank iron ore project in 2018.

Asked if China pulling back its demand was being felt, Mr Craig said: “We can feel it to some extent in the prices but as a business, we’re not having any difficulty moving quality product.”

It’s that quality aspect BHP is stressing, saying South Flank has bumped up the average grade for its WA iron ore assets from 61 to 62 per cent, while the overall proportion of the sought-after lump form of the commodity is lifting from 25 to 30-33 per cent.

Steel makers seeking to lower their greenhouse gas emissions are shying away from lower grade ores that are more carbon-intensive to use.

BHP is in the midst of a massive effort to improve its green credentials, getting out of thermal coal used in electricity production but hanging on to its metallurgical coal assets, again emphasising that its focus on high quality will help steel makers clean up their act, and that steel is of course essential.

The company is also offloading its petroleum business to Woodside.

BHP last month released its 2021 climate action plan, setting a goal to achieve net zero greenhouse gas emissions from its operations by 2050.

As for its ‘Scope 3’ targets downstream, the company reiterated its previously announced goals to help develop ways to cut emissions in integrated steelmaking by 30 per cent and “support” slashing 40 per cent emissions intensity of BHP-chartered shipping by 2030.

BHP officially opened its South Flank mine on Thursday. Picture: Rebecca Le May

So-called ESG (economic, social and governance) measures are now considered absolutely critical to not only a company’s ‘licence to operate’ but also secure funding, with financiers increasingly reluctant to back ‘dirty’ industry.

And the race to be the greenest miner is on, with Fortescue Metals Group saying on Tuesday it planned to achieve net zero emissions by 2040.

WA Premier Mark McGowan, who as the state’s Treasurer last month handed down a bonanza budget driven by those all-important iron ore royalties, also said he wasn’t fazed by the recent iron ore price plunge.

“We’ve budgeted for this,” the wildly popular Labor leader said.

This financial year, the WA government expects a price of about $US120/t, plunging to $US66/t in coming financial years.

“So we’ve taken a very careful and cautious approach to budgeting on our iron ore,” the Premier said.

“We’re confident our budget figures will be roughly correct.”

On Banjima country, South Flank is forecast to supply global steel markets for the next 25 years.

WA Premier Mark McGowan appeared mighty chuffed by his gifts from traditional owners, best of all a 'punishment stick'.