Amid all the angst about falling oil, coal and especially iron ore prices, not to mention continuing pressure on big mining companies to cut costs and spending, BHP Billiton (BHP) and Rio Tinto (RIO) are drifting towards a decision on the huge Resolution underground copper project in the US that will worry the life out of investors and analysts.
The project could also condemn Olympic Dam in South Australia to more years of delay – it already looking at a decade’s delay at least from when BHP put the project on the backburner in 2012.
Now that could be extended for an awfully long time.
On Saturday morning, our time, the US Congress cleared the way for Rio and BHP to swap land with the American government in Arizona, a move which brings closer the chances of the partners building a long-delayed $US6 billion copper mine.
The land swap was first proposed nine years ago and its approval was hidden away in the annual defence policy bill passed by the US Senate on Friday night, our time, and the House of Representatives the week before. Attaching controversial projects and other decisions to bills that must be passed by the US Congress, is a common way of securing their approval.
The bill will now be sent to President Barack Obama to sign it into law.
The Resolution copper mine is a giant. It’s 55% owned by Rio and 45% by BHP, and previous plans have called for the production of more than 1 billion pounds of copper a year at its peak, which would make it the largest copper producer in North America and one of the largest in the world. In fact it would meet 25% of the annual copper needs of the US.
Rio and BHP need the land exchange, which has been long opposed by environmental and native American groups, to develop the massive underground mine, where the companies have already spent more than $US1 billion on drilling and digging a two kilometre shaft.
The mine development plan, submitted a year ago, has yet to be approved by the US government. The mine sits below 2,400 acres owned by the US government. The legislation allows Resolution Copper, owned by Rio and BHP, to secure it by exchanging 5,300 acres that the company owns throughout Arizona with recreational, conservation and cultural significance.
Rio Tinto has reported an inferred resource of 1.624 billion tonnes containing 1.47% copper and 0.037% molybdenum, at depths exceeding 1,300 metres, making it a massive deposit. Rio reckons the mine would have a life of 40 years or more.
If developed, it will give Rio Tinto (and BHP for that matter) a very strong position in the global copper market heading into the period 2025 to 2040.
Rio already controls the huge Oyu Tolgoi copper project in Mongolia which is already one of the largest in the world. The company still have to reach agreement with the government on a massive $US5 billion plus underground copper mine. That delay could see Rio forced to write-off $US2.5 billion from the value of the project in its 2014 annual accounts.
The Resolution project was picked up by BHP in its disastrous acquisition of Magma Copper in 1996, on which it lost $A3.2 billion. The proposed mine is actually beneath the old Magma copper mine which BHP bought. Resolution Copper, owned by Rio and BHP, has estimated the mine could create 3,700 jobs near Superior and more than $US61 billion in economic benefit to the state.
Both companies are shareholders in the huge Escondida copper mine in Chile, the world’s largest. BHP controls that project with Rio as the main minority partner. It was picked up by BHP when it bought Utah International in the early 1980’s. Utah gave BHP control of the word’s richest coking coal in the Bowen Basin of Central Queensland.
BHP Billiton shares fell 6.4% last week to a five-year low of $28.46. Main rival Rio Tinto shares lost 6.1% to $53.67.
Rio is in the midst of silent test of strength with would be suitor, Glencore.
