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BHP Billiton Ravensthorpe Nickel Project

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The BHP Billiton Ravensthorpe Nickel Project was a project to develop a nickel mine and processing facility 35km east of the town of Ravensthorpe, approximately 540km south east of Perth in Western Australia in combiation with an expansion to BHP Billiton's existing Yabulu refinery in Queensland.

The Project

The project was for an open pit mine covering three adjacent ore bodies together with a beneficiation facility, acid pressure leach and hydrometallurgical processing planet to treat both saprolite and limonite ores[1]. Production estimates were for up to 50,000 tonnes of contained nickel and 1,400 tonnes of contained cobalt. The processed ore was to be transported 155 km east to the deep-water port of Esperance where it would be shipped to BHP Billiton's Yabulu refinery on a take-or-pay contract. QNI would market the finished nickel and cobalt products arising from the joint venture.

There are three ore bodies at the site with a total proven reserve of 263.3 Mt at 0.65% nickel and 0.029% cobalt, with an estimated project life of 25 years.

History of the project

Joint venture

In November 1999 QNI Pty Ltd a wholly owned subsidiary of BHP Billiton entered into a joint venture agreement with Comet Resources NL. The first stage involved a AU$10 million investment by QNI into a four month evaluation program, which included acquiring 12 per cent of Comet at an entry price of AU$0.925 per share[2]. In April 2000 QNI elected to proceed with development of the project and to purchase a 40% joint venture interest from Comet Resources for AU$36 million at the conclusion of the joint venture agreement, based on an agreed project value of AU$90 million[3].

March 2001 QNI agreed with Comet to purchase the latter's remaining 50 percent interest in the project at a cost of AU$28 million plus the cancellation of its 19.9% interest in Comet[4]. In March 2004 BHP announced approval for the further development of the Ravensthorpe project which included development of the mine, treatment plan and other infrastructure. In addition expansion to the related Yabulu Refinery in Queensland was announced. At that stage the capital cost for the combined projects was estimated at $US1.4 billion[5].

Despite announcing development plans in March, by August 2001 BHP Billition extended the completion date for the feasibility study to November or December of 2001. President Nickel Operation - Western Australia Ken Hellsten said the merger of BHP and Billiton had opened new opportunities for the project, including an atmospheric pressure leach process, adding that nickel laterite refining was very complex[6]. By October the Western Australian state government had confirmed that it would provide funding for multi-user community infrastructure in relation to the mining and processing project[7].

Development

In March 2004 BHP Billiton announced approval for the development for the Ravensthorp project and the extension of the Yabulu nickel refinery and confirmed the previous estimated capital cost of US$1.4 billion[8]. However it was flagged in their 2006 annual report that project was experiencing continued cost and scheduling pressures resulting from the 'heated market' in Western Australia. Further it was disclosed that cost pressures would likely result in a capital cost increase of at least 30 per cent and that the company was reviewing the cost and delivery schedule[9].

Following on from the guidance in their annual report BHP Billiton announced in November 2006 an appraisal of the capital costs of the project and increased the total budget to US$2.2 billion. In addition due to lower than expected labour productivity and late delivery of some material and equipment the target date for the first metal produced at Yabulu from Revensthorpe ore would be pushed back to the first quarter of 2008[10]. However at the same time President of Stainless Steel Materials Jimmy Wilson acknowledged that that while the project had experienced increased capital costs it was still well positioned to deliver positive results. By this stage construction at Ravensthorpe and the Yabulu refinery expansion was approximately 73 and 87 per cent complete respectively.

The bad news in relation to the project continued with the 2008 annual report attributing costs associated with the start-up operations at the two sites to an adverse impact on earnings of US$313 million. In November 2008 BHP Billiton announced after a review of the project a pre-tax impairment charge of approximately US$2.1 billion (US$1.5 billion post-tax) would be reflected in the groups half year results to 31 December 2008. The impairment was attributed to the 'significant deterioration' in the nickel market, with a 'dramatic fall' in demand together with changes in the rate of production at Ravensthorpe and the project sustaining capital expenditure[11].

Closure

On 21 January 2009 BHP Billiton announced it would immediately commence the 'ramp down' and indefinite suspension of the Ravensthorpe nickel operation, the decision was attributed to reduced profitability prospects, 'significant and continuing deterioration' in the outlook for the nickel market and the 'projected level of capital expenditure required in order to achieve and sustain projected production volumes at Revensthorpe[12]'. An additional $US1.6 billion in write-downs and an associated half-year loss of $US233 million was also announced at the same time[13].

Closing of the mining operations resulting in the loss of 800 permanent and 1000 contractor jobs, of which 350 were in the associated Yabulu nickel refinery in Queensland.[13] BHP Billiton gave as the reason for closure "the diminished prospects for profitability[14]". This was at a time when nickel prices had fallen to under US$11,000 per tonne from a high of US$50,000 per tonnne in May 2007[15]. The Western Australian State Government expected the closure would result in lost royalties of approximately $20 million per annum.

The 2009 annual report disclosed that the total costs related to the closing of the Revensthorpe mine and suspension of shipments to Yabulu of US$3.6 billion with an offsetting US$1.1 billion in tax benefits related to the loss. In addition the mining operations made loss of $173 million[16].

Sale

In December 2009 Canadian mining company First Quantum Minerals announced they would purchase the operations from BHP Billiton for $US340 million.[17] First Quantum Minerals anticipated production of 39,000 tonnes per year in the first five years, with the creation of 600 jobs.

By the time BHP Billiton sold the project they had spent a total of $US3.6 billion on building and then abandoning the project.

Project Partners

Partners to the project included Comet Resources and Built Environs.

See also

References

  1. ^ http://www.bhpbilliton.com/bbContentRepository/News/RelatedContent/RYINOverviewPaper.pdf
  2. ^ http://www.bhpbilliton.com/bb/investorsMedia/news/2000/qniElectsToProceedWithDevelopmentOfTheRavensthorpeNickelProjectWithCometResources.jsp
  3. ^ http://www.bhpbilliton.com/bb/investorsMedia/news/2000/qniElectsToProceedWithDevelopmentOfTheRavensthorpeNickelProjectWithCometResources.jsp
  4. ^ http://www.bhpbilliton.com/bb/investorsMedia/news/2001/qniAcquiresRemaining50PerCentOfRavensthorpeNickelProject.jsp
  5. ^ http://www.bhpbilliton.com/bb/investorsMedia/news/2004/bhpBillitonApprovesRavensthorpeYabuluIntegratedNickelProject.jsp
  6. ^ http://www.bhpbilliton.com/bb/investorsMedia/news/2001/ravensthorpeFeasibilityStudyExtended.jsp
  7. ^ http://www.bhpbilliton.com/bb/investorsMedia/news/2001/ravensthorpeNickelProjectReceivesStateFundingCommitment.jsp
  8. ^ http://www.bhpbilliton.com/bb/investorsMedia/news/2001/ravensthorpeNickelProjectReceivesStateFundingCommitment.jsp
  9. ^ BHP Annual Report 2006 http://www.bhpbilliton.com/bbContentRepository/bhpbarinfooncompany06.pdf
  10. ^ http://www.bhpbilliton.com/bb/investorsMedia/news/2006/bhpBillitonApprovesRevisedCostsForRavensthorpeNickelProject.jsp
  11. ^ http://www.bhpbilliton.com/bb/investorsMedia/news/2008/impairmentOfRavensthorpeAndYabuluNickelOperations.jsp
  12. ^ http://www.bhpbilliton.com/bb/investorsMedia/news/2009/changesToBhpBillitonsNickelBusiness.jsp
  13. ^ a b http://www.theage.com.au/business/jobs-go-as-bhp-cuts-wa-qld-operations-20090121-7m2q.html
  14. ^ http://www.abc.net.au/news/stories/2009/01/21/2470779.htm
  15. ^ http://www.perthnow.com.au/news/western-australia/bhp-mine-on-brink-of-closure/story-e6frg13u-1111118603590
  16. ^ http://www.bhpbilliton.com/bbContentRepository/docs/090812BhpBillitonPreliminaryResultsNewsRelease.pdf
  17. ^ Ravensthorpe nickel mine sale, Jade Macmillan http://www.abc.net.au/news/stories/2009/12/10/2767529.htm
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