By Jane Goldsmith
August 13, 2015
ACROSS the first half of 2015, iron ore producers globally worked to increase production output and cost efficiency as prices for the steel-making commodity crashed to near-decade lows.
In late July BHP Billiton Iron Ore, the second largest iron ore producer in the Pilbara, announced it had increased production by 13 per cent to a record 254 million tonnes of iron ore for the year ending 30 June 2015.
Despite its massive output achievements, the company was forced to defend itself against critics, which included several junior and mid-tier iron ore miners as well as WA Premier Colin Barnett, who questioned its plans to increase production in light of weakening demand and depressed prices.
By 2017, BHP wants to increase its output to 275 million tonnes per annum, while its major rival Rio Tinto aims to produce 360mtpa.
However, BHP Iron Ore president Jimmy Wilson defended the move, stating that holding back production in the hope the iron ore price would pick up was not a viable answer.
“If we pulled back volume, that volume would be filled by other companies,” Mr Wilson said at the Global Iron Ore and Steel Forecast conference, held in Perth in March.
“At the end of the day, we will be penalising, in essence, our shareholders.”
BHP Iron Ore is one of the leading iron ore producers in the world, selling lump and fines products produced in Australia and pellets from operations in Brazil.
Its principle operations, run by subsidiary West Australian Iron Ore (WAIO), comprise an integrated system of seven inland mining operations across the Pilbara; more than 1000km of rail and stock yards; and two separate port facilities, Nelson Point and Finucane Island, at Port Hedland.
WAIO employs 13,000 people across the system, including the historic Mt Whaleback single-pit open-cut mine with its adjacent smaller deposits Orebodies 29, 30 and 35; satellite mines Wheelarra and Orebodies 18, 23, 24 and 25, near Newman; as well as Yandi, Area C and Yarrie mine sites.
In April 2014, BHP officially opened its newest mine, Jimblebar, after first breaking ground for ore production in 2013.
Jimblebar
The Jimblebar mine, 41km east of Newman, originally opened in March 1989 with a 14mtpa production capacity via a two-stage crushing circuit. It was originally known as McCamey’s Monster, after iron ore prospector Ken McCamey.
BHP acquired the mine in 1992, although it did not begin site redevelopment until nearly a decade later. The site was approved for construction in February 2011, which included two workshops, a handling plant, two primary crushers for a 45mtpa handling capacity, a stockyard, accessory offices and an accommodation village.
In its first financial year of operations, Jimblebar was expected to produce about 4mt; however, it produced five times its expected output to just under 19mt.
Jimblebar general manager Tim Day told delegates on a 2014 site visit that from the beginning, the site had been “very much been wired on the productivity phase”, with employees shifts averaging about 12 hours per day.
“Obviously you invest a lot of capital into a place you want to run as productive, so we’ve kept productivity as our number one agenda in; set tonnes to actually get this place up and running,” he said.
“Fundamentally, the productivity of this place is exceptional. [Jimblebar] actually [came] on early; it’s the productivity of our people and the hours the machines are doing and the rates they’re doing.”
At the end of 2014 Jimblebar had 25 trucks, including nine autonomous trucks which completed about 16 per cent of total movements and produced about 40 per cent of the total ore output.
The 45mtpa crusher capacity was also scheduled to be upgraded to 60mtpa, with the introduction of a third crusher and an additional mining fleet.
“When Jimblebar was approved it was very deliberately made [with a bottleneck] at the crushers; the entire system is the bottleneck,” Mr Day said.
“The thing that stops us from expanding today is 45mt at the crushers. Primary crusher one is a 30mt crusher, and primary crusher two is the old Wheelara operation crusher which is now connected into Jimblebar; it’s a 15mt crusher.
“From that point, right through the entire network, is a 60mt construction. Deliberately, so we can expand into the future.”
Iron ore production
In the 2014 and 2015 financial years BHP produced 225mtpa and 233mtpa respectively, in a continuation of its ongoing consecutive annual records since 2000.
In both years BHP noted the importance of Jimblebar’s contributions to the increased capacity of its integrated supply chain production.
“WAIO production of 254mt (100 per cent basis) represents the 15th consecutive annual record and was underpinned by continued improvement in the performance of our integrated supply chain and the successful ramp-up of the Jimblebar mining hub,” the company stated in its FY2015 report.
“Continued optimisation of the port facilities and an increase in direct to ship ore resulted in record sales volumes of 256mt (100 per cent basis).
“[This] was underpinned by the early commissioning of Jimblebar and our productivity agenda.”
In FY2016, BHP expects total iron ore production to increase again by 6 per cent to 247mtpa, and further productivity improvements into the future would contribute to increased Pilbara system capacity to 290mtpa by mid-2017.
Mr Wilson responded to criticism that the company was actively driving down the iron ore price by increasing yearly throughput, stating BHP was working to protect Australia’s interests.
“Australia is not the only supplier of iron ore. In a free market, our customers have other supply options in countries like Brazil, China, India and South Africa,” he said.
“We absolutely and unequivocally believe that BHP Billiton and Australia must improve productivity to remain competitive. BHP Billiton’s US$25 billion capital investment over the last decade in our [WAIO] business was made because of our confidence in the long term future of iron ore.
“Our iron ore resource underpins our expectation that we can mine for more than 100 years and our confidence in the business, and the market, is unchanged.
“BHP Billiton is not oversupplying or flooding the market. Our strategy to safely increase production through productivity remains commercial, rational and consistent.
“We have also taken tough decisions to improve our efficiency and to ensure our iron ore business remains competitive. Today we are generating better margins on almost 2.5 times the volumes compared to the last time the iron ore price averaged around US$50 per tonne in 2006.”
Iron ore outlook
Mr Wilson said that BHP intended to keep its share of the seaborne iron ore market relatively constant into the medium term, in line with China’s requirements.
“While Australian iron ore producers have responded quickly to meet China’s demand, and despite the tens of billions of dollars we have invested in our iron ore business, BHP Billiton’s share of supply in the global seaborne iron ore market has remained constant at about 17 per cent,” Mr Wilson said.
He said Jimblebar’s output would likely increase to 60mtpa though a proposed stage-two ramp up.
“We are reasonably confident that with the numbers – the internal rates of return – on this, that the board will approve,” Mr Wilson said.
“So, it is likely we are just going to get on and do that; in fact, we are in the process of doing that.
“The stage-two project will then target an expansion to 60mt – nearly on par with South Korea’s total annual imports.”
BHP Billiton chief executive Andrew Mackenzie confirmed the company has performed well in FY2015, and he expected similarly strong results in the coming years.
“Our businesses performed well over the 2015 financial year,” he said.
“We have improved the performance of our equipment, reduced costs, and increased volumes despite a significant reduction in capital spend.
“Better productivity will be the sole source of volume growth at [WAIO] in the 2016 financial year with production forecast to increase by seven per cent and unit costs are expected to fall to US$16 per tonne.”
