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BHPBill - exploration and development report
The Newcastle Third Port Project (energy coal) was completed in June 2010, ahead of schedule and budget. This project will not be reported in future Exploration and Development reports. During the year ended 30 June 2010 a further three projects achieved first production and two projects were sanctioned for development. The three commissioned projects were Western Australia Iron Ore Rapid Growth Project 4 (iron ore), Klipspruit Expansion (energy coal) and Pyrenees (oil and gas). The sanctioned projects were MAC20 Project (energy coal) and Antamina Expansion (copper). In addition, USD2.4 billion of pre-commitment expenditure was approved to accelerate development of Western Australia Iron Ore Rapid Growth Project 6 (iron ore), Caval Ridge and Hay Point Coal Terminal Stage 3 Expansion (both metallurgical coal) and the first stages of the Jansen Potash Project (potash).
Minerals Exploration
Grassroots exploration continued on copper targets in Chile and Zambia; nickel targets in Australia; manganese targets in Gabon; and diamond targets in Canada. Exploration for iron ore, coal, bauxite, potash and manganese was undertaken in a number of regions including Australia, Canada, South America, Russia and Africa. During the quarter, BHP Billiton confirmed the strength of its position in the Saskatchewan potash basin in Canada with the reporting of an in-situ Mineral Resource(1) of 3 370 million tonnes @ 25.4% K2O at its wholly-owned Jansen Potash Project. In addition, the Indonesian Coal Project (ICP) joint venture was formed following Government approvals. PT Adaro Energy TBK has acquired a 25 per cent interest in the ICP joint venture, with BHP Billiton holding the remaining 75 per cent. For the year ended 30 June 2010, BHP Billiton spent USD516 million on minerals exploration, of which USD467 million was expensed. This includes USD73 million of exploration spend for potash in Saskatchewan, Canada.
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BHPBill - production report
- Petroleum delivered its third consecutive annual production record following the successful delivery of a series of growth projects in the Gulf of Mexico (USA) and Australia. These contributed to continued growth in the high margin crude operations. * BHP Billiton operated Shenzi (USA) and Pyrenees (Australia) performed at or above design capacity during the year.
- Western Australia Iron Ore achieved its tenth consecutive annual production record. Samarco (Brazil) also achieved quarterly and annual production records.
- Annual production records were also achieved at North West Shelf, Hunter Valley Energy Coal, Worsley, Nickel West and Poitrel (all Australia), Alumar refinery (Brazil) and Zamzama (Pakistan).
- Quarterly production records were achieved for manganese alloy, Cerrejon Coal (Colombia) and Samancor Metalloys (South Africa).
- During the second half of the financial year, the old benchmark pricing system for iron ore and metallurgical coal was substantially replaced by shorter term market based pricing. The transformation ensures the majority of BHP Billiton's bulk commodities (iron ore, manganese, metallurgical coal and energy coal) are now linked to market based prices.
BHP Billiton continues to be cautious on the short term outlook for the global economy. Uncertainty surrounds the near term prospects for growth in the developed world as governments adjust fiscal policies following a period of significant stimulus and subsequent increase in sovereign debt levels. Within China, measures introduced to reduce growth to more sustainable levels means volatility in commodity end-demand is likely to persist. BHP Billiton sees these measures as a normal continuation of China's economic management policies.
Total Petroleum Production - Petroleum delivered its third consecutive annual production record following the successful delivery of a series of growth projects in the Gulf of Mexico and Australia. BHP Billiton operated Shenzi and Pyrenees performed at or above design capacity during the year. This strong performance was partially offset by natural field decline and the suspension of drilling activities in the Gulf of Mexico. Drilling activities at Atlantis (USA) and Shenzi ceased during the June 2010 quarter. BHP Billiton continues to monitor and assess the impact of the six month suspension of certain permitting and drilling activities in the Gulf of Mexico.
Crude Oil, Condensate, and Natural Gas Liquids - High margin crude oil and condensate production was 27 per cent higher than the year ended June 2009 and significantly higher than all comparative periods following the successful start-up of Pyrenees and consistently strong performance at Shenzi. Strong reservoir performance from Atlantis North (USA) and a lack of weather related impacts also contributed to the annual increase in production. Natural Gas - Production was in line with the year ended June 2009. Production at the North West Shelf benefited from a full year contribution from LNG Train
Alumina - Production was nine per cent higher than the year and quarter ended June 2009 due to record annual performance at Worsley and the ongoing ramp up of the recently expanded Alumar refinery. An unplanned interruption of the ship unloading capabilities at Alumar impacted current quarter performance. In addition, Worsley benefited from the processing of stockpiled hydrate in the March 2010 quarter.
Copper - Production was higher than the March 2010 quarter due to strong performance at Escondida (Chile), a return to full capacity at Spence (Chile) and improved plant utilisation at Cerro Colorado (Chile). Olympic Dam (Australia) recommenced hoisting from the Clark Shaft during the quarter and has returned to full production. Production for the year ended June 2010 decreased due to the Olympic Dam Clark Shaft outage, industrial action at Spence, lower grades at Cerro Colorado and Antamina (Peru), and the cessation of sulphide mining at Pinto Valley (USA). This was partly offset by higher grade and recovery at Escondida. Escondida production is expected to decline by five to 10 per cent in the 2011 financial year, mainly due to lower grade. At 30 June 2010 the Group had 236,584 tonnes of outstanding copper sales that were revalued at a weighted average price of USD2.96 per pound. The final price of these sales will be determined in the 2011 financial year. In addition, 234,871 tonnes of copper sales from the 2009 financial year were subject to a finalisation adjustment in 2010. The finalisation adjustment and provisional pricing impact as at 30 June 2010 will increase earnings(b) by USD303 million for the year (year ended June 2009 USD936 million loss). Lead - Cannington (Australia) production increased over the previous year and quarter ended June 2009 due to higher grades and plant throughput. Zinc - Production was higher than the year and quarter ended June 2009 due to higher plant throughput and utilisation, and higher grades at Antamina and Cannington.
Silver - Production was higher than the year and quarter ended June 2009 due to higher throughput and increased grade at Cannington. Uranium - Production was lower than the year and quarter ended June 2009 due to the Clark Shaft outage at Olympic Dam. The Clark Shaft returned to full capacity during the June 2010 quarter.
Diamonds - Production was lower than all comparative periods primarily due to lower average grade. During the year a higher proportion of ore was sourced from the Fox pit at Ekati (Canada) as mining of the higher grade Panda underground was completed.
Nickel - Nickel West achieved record production for the year ended June 2010 following the major furnace rebuild at the Nickel West Kalgoorlie (Australia) smelter in the prior year. The subsequent drawdown of accumulated concentrate stocks is largely complete. Production in the June 2010 quarter was impacted by disruptions to hydrogen supply at the Nickel West Kwinana (Australia) refinery and an unplanned outage at Nickel West Kalgoorlie. During the second half of the 2011 financial year, Cerro Matoso (Colombia) production will be impacted for nine months due to the planned replacement of one of its two furnaces.
Iron Ore - Record production was achieved for the year ended June 2010. Current quarter production was impacted by tie-in activities at Western Australia Iron Ore as Rapid Growth Project 4 continues to ramp up. Following demand related production adjustments, Samarco returned to full production during the year ended June 2010, delivering a record result for the operation. For the 2010 financial year, 39 per cent of Western Australia Iron Ore shipments on a wet metric tonne basis were priced on annually agreed terms, with the remainder sold on a shorter term basis. During the second half of the financial year, the old benchmark pricing system was substantially replaced by shorter term market based, landed pricing. Our expectation is that future Western Australia Iron Ore shipments will be priced on this basis.
Manganese Ore - Production was higher than all corresponding periods despite weather related impacts in Australia and South Africa during the June 2010 quarter. Mamatwan mine (South Africa) achieved record production during the quarter. For the year, production was significantly higher and reflected improved market demand. Samancor Manganese ore continues to be priced on a monthly basis. Manganese Alloy - Following the recovery in market conditions, production was at record levels for the quarter and higher for the year ended June 2010. Samancor Metalloys achieved record production during the June 2010 quarter. Samancor Manganese alloy continues to be priced on a shorter term basis.
Metallurgical Coal - Production was higher due to improved operational and supply chain performance, supported by strong demand. The March 2010 quarter was impacted by wet weather disruptions at Queensland Coal and planned longwall moves at Illawarra (both Australia). Despite this, Queensland Coal achieved record annual and quarterly shipments. Hay Point Coal Terminal (Australia) is currently undergoing planned maintenance on Berth 2, which is scheduled for completion in August 2010. As with iron ore, the old benchmark system was substantially replaced by shorter term market based pricing. For the year ended June 2010, 34 per cent of metallurgical coal shipments were priced on a shorter term basis. The majority of product sold in the June 2010 quarter was priced in this manner.
Energy Coal - Production was in line with the previous year with the continued ramp up of the Klipspruit (South Africa) expansion and record production at Hunter Valley Energy Coal offsetting lower customer demand at New Mexico Coal (USA). Cerrejon Coal achieved a production record during the June 2010 quarter however this was offset by weather related disruptions and a strike by the rail services provider in South Africa, and plant upgrade activities related to the MAC20 project at Hunter Valley Energy Coal.
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BHPBILL's share grows with metal prices
Business Day reported that, stock for BHPBILL , the world's largest mining company, rose for the first time in three days on Friday, 16 July 2010 climbing R3.02 or 1.9 %, to R214.98 before closing lower at R211.50 as the prices of lead, tin and zinc rose. BHPBILL was created in 2001 by the merger of Australia's Broken Hill Proprietary company and the British-Dutch Billiton.
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BHPBill -- details of new Australian mining tax
On 2 July 2010, the Australian Prime Minister, Julia Gillard, announced the Australian Government's decision to replace the proposed Resource Super Profits Tax with a proposed Minerals Resource Rent Tax (MRRT) on mined iron ore and coal. Key features are below:
- It applies only to iron ore and coal.
- It will be calculated on the profit of a mine, based on the value of the resource at the 'mine gate' less all costs to that point. It will not apply to downstream processing or infrastructure.
- The rate of tax is 30 per cent.
- There is a 25 per cent 'extraction allowance' that results in only 75 per cent of otherwise taxable profits being subject to the MRRT.
- Any royalties paid to state governments are credited against any MRRT liability, and the MRRT paid is itself a deductible expense for income tax purposes.
- There is the option to have as the starting base the market value of the project (not the previously proposed book value). This is particularly important for our iron ore and coal operations which have been in existence for many years.
- New expenditure is to be immediately deductible in full.
- Losses will be able to be transferred to offset profits such that only net profits from projects are subject to the new tax. Any MRRT losses and/or unused credits for state royalty payments will be able to be carried forward at the long term government bond Rate plus 7 per cent.
Prime Minister Gillard also announced the establishment of a Policy Transition Group led by former BHPBill chairman, Don Argus AC, and Resources Minister Martin Ferguson AM that will oversee the development of more detailed technical design aspects. This Transition Group has the objective of ensuring the announced tax becomes effective legislation in accordance with the proposed design intent and in a commercial, practical manner. Management believes this decision to replace the earlier proposed tax with a better designed tax proposal is encouraging for the resources industry. A good foundation has now been established on which an effective tax can be implemented. There is still a great deal of detailed work to be done before this tax is enacted and its impact is certain. BHPBill will work with the Government to ensure that the final outcome of the minerals taxation proposal maintains the international competitiveness of the Australian resources industry and is in the long term interests of all Australians.
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BHPBill proposed mineral resource rent tax
BHP Billiton announced that they are encouraged by the federal government's announcement that it proposes to replace the resource super profits tax with a mineral resource rent tax ("MRRT"). The mining industry has consistently stated that any tax reform needs to satisfy core principles that include:
- ensuring that any new tax is not applied retrospectively, so that existing projects where investment decisions have already been made are not adversely affected; and
- ensuring a competitive effective tax rate that will not disadvantage Australia as an investment destination.
As a result of constructive discussions, the proposed new tax will apply only to iron ore and coal resources from 1 July 2012. The company agree that the proposal presented by the government represents very significant progress towards a minerals taxation regime that satisfies the industry's core principles. The company will continue to work constructively with government to ensure that the detailed design of minerals taxation maintains the international competitiveness of the Australian resources industry into the future.
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BHPBil -- Australia tax changes
BHP Billiton announced that it was encouraged by the Australian government's decision to replace the proposed resource super profits tax with a mineral resource rent tax ("MRRT") on mined iron ore and coal. The proposed MRRT is closer to meeting the tax design principles in the following ways:
- Prospective - businesses can transition into the MRRT at market value of the business (not the previously proposed book value) with depreciation over 25 years. This is particularly important for the iron ore and coal operations which have been in existence for many years.
- Competitive - the headline tax rate is 30 per cent, with a 25 per cent allowance for the extraction activity such that only the resource profit is taxed. Company tax will continue to be paid.
- Differentiated - the tax applies to coal and iron ore resources with all other resources exempt.
- Resource based - taxable profit will be that at the mine gate and not on downstream processing or infrastructure.
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