Iron ore production shows no sign of slowing, but getting the ore on the water may be more problematic.
BHP Billiton has revealed key operational data highlighting significant productivity gains to back its recent challenge to become the state’s lowest-cost iron ore producer.
But highlighting the substantial savings from each stage in the production process which allows the iron ore major to mine more ore and deliver additional quantities to port leaves one significant question: how can BHP get more tonnes out of Port Hedland?
Cutting costs by 25 per cent and, in doing so, increasing production by 29 per cent to 290 million tonnes per annum pushes BHP well beyond its 240mtpa quota at the capacity-constrained harbour.
In responding to questions about this obstacle, BHP Billiton Iron Ore president Jimmy Wilson said he was confident of exporting its increased production, despite not having guaranteed allocations.
It remains to be seen whether he is relying on the Pilbara Ports Authority re-evaluating its capacity beyond the 495mtpa previously thought possible.
In the background, BHP has put on hold plans to develop the outer harbuor. It also has the option to build two additional berths in the inner harbour but this would require the kind of capital expenditure that doesn’t appear to fit into its current cost-cutting strategy.
Another potential source of capacity is the possibility that some junior miners’ fail to claim their quota.
Several junior miners are struggling under current market conditions, including low prices driven, in part, by the earlier expansions delivered by BHP and its even lower-cost rival Rio Tinto.
Fortescue Metals Group chief executive Nev Power provided some insight last week into how Port Hedland could export BHP and FMG’s growing iron ore shipments as well as the expected injection from Roy Hill.
He said the port’s true capacity was, based on his best guess, around 650 – 700mtpa.
“495 is the allocated tons and I don’t think there’s any incentive or any imperative for the port authority to increase that because it’s really just a nominal number these days and it’s more about what the capacity of the port is,” he said.
“Port Hedland is the largest and one of the most efficient ports in the world. It has incredible capacity going forward.
“We might not know exactly how to do that yet but every day more and more improvements are made to achieve that. I think it’s increasingly becoming accepted now that Port Hedland has that excess capacity.”
As the spot iron ore price dropped to around $US80 per tonne, the market has been concerned about the future of some higher-cost operators while the state’s Premier Colin Barnett has been vocal in criticizing the way the majors are pumping up volumes under current conditions.
However, it has long been known that the post-expansion phase in the Pilbara would result in a productivity push. Rio Tinto led that with strong efficiency gains, now followed by BHP.
Port capacity aside, BHP’s iron ore team was forthright last week in detailed presentations about knocking Rio Tinto off its lowest-cost pedestal.
Mr Wilson, along with vice-president of production logistics and infrastructure, Rag Udd, and vice-president production mines Eduard Haegel, said BHP was optimising the flow between mine production, rail operations and port exports, without major infrastructure or capital injections.
So far it has increased truck operating hours by more than 30 per cent in three years and lifted excavator production by 29 per cent with solutions such as shorter, better organised shift changes and fleet standardization. This has allowed the retirement of assets because the same amount of work can be done with less equipment.
Furthermore, more than 70 per cent of BHP’s rail carts now carry 40t of ore each, up from 38t, and trains are being lengthened to 264 ore cars, up from 248, with further time saving improvements to braking mechanisms planned.
Reducing unplanned maintenance has helped BHP improve how many trains it sends out (by 28 per cent), and reduce travel time (23 per cent in the past year).
When fully implemented, the longer and heavier trains will add a 28mtpa capacity increase for a combined $US20/t of capital investment.
A new staging facility at the port has allowed BHP to ensure trains arrive at the right time with the right product, where they can be loaded directly onto the correct ship.
BHP is also still cutting staff, but has not provided an official figure of redundancies, believed to be in the hundreds so far.
• The reporter travelled to the Pilbara as a guest of BHP Billiton.
