Could not find Chesters one, but interesting is Olympic Dam has high Uranium content, too high!
Does anyone know what REX,s uranium content is ? If real low, then big avantage for BHP to buy and blend with Olympic Dam ore ?
Reading between the lines BHP is going green and reading what Chester wrote, South Australia is a mini me of South America.
In these political turbulent times, who the hell would want to be exposed in places where one day you own it, the next day the govt owns it! Reason Number 87 why RXM is a great company.
Another effort to make Olympic Dam work
The other puzzle that BHP could solve by acquiring OZ – and the biggest motivation behind the deal – lies at South Australia’s Olympic Dam.There are many reasons why Olympic Dam has been a difficult mine for BHP and delivered close to zero return on capital employed (ROCE) since it was obtained via the acquisition of Western Mining Corporation 17 years ago.High uranium levels are the first challenge; state, federal and international governments have strict rules about the transport of radioactive materials such as uranium.An aerial view of one of the Olympic Dam mines. APOlympic Dam’s high uranium content forces BHP to fully process the ore right through to the end of the energy-intensive process that makes red sheets of metal, about one square metre in size.Most other copper miners, including OZ, have less uranium in their geology so can transport and export their copper as a grey concentrate that looks like soil.OZ’s concentrate is an intermediate product and so requires far less processing; the Adelaide company’s customers do the smelting of the concentrate to turn it into pure metal.Uranium is not the only challenge; the orebody at Olympic Dam is enormous but very deep underground and the copper occurs inconsistently throughout it, which is the opposite of what mining companies prefer.Bringing the high-grade concentrate from OZ’s two nearby mines and blending it with the stuff BHP digs up at Olympic Dam would enable BHP to deliver a more consistent and predictable product into its smelter and refinery.The blended product would also likely contain more copper than BHP sometimes puts into the system; the same volumes of a higher grade feedstock would derive more copper out the back end of Olympic Dam.“Oftentimes, when people think about growth, it’s all around growth in production. Now, growing production is a big lever, but really we should be thinking about growth as being growth in value,” said Henry in February, when talking about his attitude to M&A.‘Single point failures’Other challenges at Olympic Dam are man made; Western Mining built infrastructure befitting a mid-tier miner.BHP would have done it very differently if it had built the mine.The mine design, where the capacity of the mine is roughly the same as the capacity of the refinery and the smelter, means that if one part of the system fails or underperforms, the whole system underperforms.In that sense, Olympic Dam runs more like an integrated steel mill than a mine; unless there is “just in time” delivery from one part to the next, it struggles.Insiders refer to this as Olympic Dam’s series of “single point failures”.If BHP had access to extra copper concentrate volumes from OZ, the smelter and refinery at Olympic Dam would be the bottleneck in the system; a much better scenario than the mine being the bottleneck.BHP could fix Olympic Dam’s “single point failure” problem by building new mine shafts, concentrators, smelters and refineries, but it would be expensive; we can reasonably deduce that spending $8.3 billion buying OZ is the cheaper option.There might also be productivity benefits at the two OZ mines – Prominent Hill and Carrapateena – if paired with Olympic Dam’s smelter and refinery.OZ must mine selectively to avoid patches of ore that contain high levels of uranium because its regulators and customers won’t tolerate transportation of a concentrate with high uranium levels.There have been numerous occasions in the past decade when a batch of ore from Prominent Hill was processed at Olympic Dam because it contained higher than normal levels of uranium.Many believe uranium will become a bigger issue for OZ as its mines get older, the easiest bits of the resource have already been cherry-picked.A full combination with BHP would reduce the need for Prominent Hill and Carrapateena to be mined selectively to avoid uranium, and that would probably deliver a productivity benefit and extend mine life.OZ and BHP have talked on numerous occasions over the years about establishing a regular offtake agreement for OZ’s concentrate to be processed at Olympic Dam.OZ has traditionally been reluctant to become too reliant on its big neighbour, and transactions have been sporadic.RELATEDBHP’s OZ Minerals deal makes sense. Now it’s about priceRELATEDBHP’s OZ Minerals bid is really about Olympic DamIf a merger can’t be struck, a deal for BHP to buy more of OZ’s concentrate could be a consolation prize.“I think it makes strategic sense for BHP as it de-weights its exposure to iron ore and brings in a commodity that will become a more significant part of the portfolio,” says Bogdan.“You want to be exposed to those metals that are going to be beneficiaries of decarbonisation and both copper and nickel form a key part of that.“I think this transition that we are seeing is probably one of the more significant themes of the next decade”.Peter Ker covers resource companies, based in Melbourne.
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