PRESSURE is mounting on BHP Billiton to beef up its uranium business after confirming that it would be unable to fulfil commitments to supply international power companies.
A shaft collapse at the miner's Olympic Dam operation in South Australia will take up to six months to fix and production is not expected to return to normal until the end of April.
The problems at Olympic Dam yesterday stoked investor support for other uranium stocks, with potential takeover target Paladin Resources rising as much as 8 per cent on speculation that BHP may soon launch a bid for the company. Paladin closed up 26¢ to $5.06.
Energy Resources Australia, which owns the Ranger uranium mine in the Northern Territory, rose 27¢ to $26.07.
Olympic Dam is expected to operate at only 25 per cent of its capacity over the next six months as engineers try to fix the problem.
In the meantime, the company has declared the accident a "Force Majeure" event, which means it will not suffer any financial penalties for failing to deliver uranium to its major clients in Japan, France and Britain.
"We anticipate that or hoisting will be at approximately 25 per cent of capacity until full production resumes in the third quarter of the 2010 financial year," BHP said in an ASX filing.
Olympic Dam is the world's largest known uranium deposit, accounting for 8 per cent of world output.
The production outage is likely to have a significant impact on the global uranium price, which has already climbed more than 7 per cent in the past two weeks over concerns about Olympic Dam.
The spot price stands at $US47.50 a pound.
The bleak outlook on Olympic Dam comes as BHP set new quarterly production records for iron ore and petroleum in the three months to the end of September. Petroleum output reached 41.21 million barrels of oil equivalent (boe) up 18 per cent from the September quarter last year and up 10 per nt from the June quarter this year.
Quarterly iron ore output rose 1 per cent to top 30 million tonnes for the first time.
The rapid expansion of iron ore production was mainly attributable to re-stocking by Chinese buyers, but BHP warned that global demand may come under pressure for most of its commodities until the middle of next year.
"China's re-stock of commodities is essentially complete and there is now evidence of higher than normal stockpiles across the supply chain," BHP told the ASX.
"We continue to look for Chinese imports to more closely reflect real demand over the remainder of the 2009 calendar year."
Maintenance activities at Olympic Dam and the Escondida mine in Chile stymied copper output in the September quarter.
Copper production came in at 284,000 tonnes, down 8 per cent on the same period last year.
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