Rising capital costs might have a negative effect on aquisitions?
mineweb.net
Capital cost problems for largest miner
By: Jim Jones
Posted: '26-JUL-06 14:00' GMT © Mineweb 1997-2006
ST JEAN D'ATAUX, NV (Mineweb.com) --If there were any lingering doubts that the current minerals boom remains an unalloyed blessing for mining companies, BHP Billiton’s latest production report will have helped set them to rest. The group has warned that despite better metals and minerals prices, higher operating costs are leading too doubts over the viability of new capital spending.
The most surprising example is at Western Australia’s Ravensthorp nickel mine where capital costs are officially expected to exceed original budget by some 30%. Nothing new, perhaps, but such is the demand for new mining facilities that construction companies are stretched and affected by shortages of skilled personnel.
The same goes for the group’s oil expansion plans in the Gulf of Mexico.
As it was, BHP Billiton has reported record production of aluminium, copper, iron ore, nickel and natural gas in what the group modestly describes as a strong demand environment. But there are problems. In Chile, copper mine Escondida achieved record production. But the mine, which produces about 8% of the world’s mined copper, is seriously threatened by industrial action as employees demand a greater share of the stronger revenues.
Group copper production of 1.27 million tons in the year to end-June was 23% higher than in the preceding year, helped largely by a full year’s contribution from Olympic Dam in Australia. That outweighed the damage caused by an earthquake at Cerro Colorado in June 2005.
In contrast Cannington’s need to close part of its operations while stopes and declines were rehabilitated resulted in temporarily lower lead and zinc output. Uranium production was squeezed by lower grades at Olympic Dam. And the group’s iron ore and coal production levels were only marginally higher as operations were up against capacity constraints.
The same went for manganese ore. But strangely, manganese alloy sales were lower as demand slackened. The fact is that high prices are starting to have their effect on offtakes, a sign that some analysts see as a sign of a coming end to the current commodities boom.
For the present analysts are not calling a top to the share’s price. JP Morgan, for example, has reduced its earlier earnings forecasts while reducing its earnings projection. Others, less willing to be quoted tend to be less positive.
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