BHP Billiton to Reassess Yeelirrie Uranium Project in the Face of New 40% Tax

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Researched by Industrial Info Resources (Sugar Land, Texas)--BHP Billiton Limited (NYSE:BHP) (Melbourne, Australia) said that the Australian government's recent plan to impose a 40% tax on resource profits has forced the company to reassess the Yeelirrie uranium project in Western Australia.

Addressing the Australian Broadcasting Corporation, CEO Marius Kloppers said that BHP's expansion projects, including the Olympic Dam uranium and copper project, would also be difficult to approve because of the new tax plan, which will take effect in 2012. He said that the higher tax would discourage investment in Australia and encourage companies to seek opportunities offshore. He added that the new levy would significantly affect an industry that accounts for 9% of the nation's economy. Kloppers said that the new tax does not imply that BHP's projects would be shelved, but they would certainly be reassessed.

On May 2, Australia's Treasurer Wayne Swan announced that a 40% tax on natural resource profits, or 'super profits,' would be imposed from 2012, which would help the government raise as much as $11 billion in two years, beginning June 2012. The government appears to be firm about taxing the mining companies, which are enjoying the benefits of a commodities boom driven by the growing Asian economy. Swan firmly denied that the new tax would adversely affect the mining industry. The tax plan is awaiting approval from the parliament.

General Manager Andrew Shook of Yeelirrie said that the mine project is currently in the pre-feasibility stage, and the company expects to move into the feasibility stage by the end of 2010 or early 2011. According to plans, BHP intends to begin production at Yeelirrie by 2014. The company has not disclosed the estimated development cost of the project. Once operational, the mine is expected to increase Australia's uranium exports by 50%.

Yeelirrie is Australia's second-largest undeveloped uranium deposit and has an estimated 30-year lifespan. Shook said that the mine's projected output is about 3,500 tons per year, which is near the bottom of an earlier forecast range that had 5,000 tons per year as a top estimate. The Yeelirrie reserve was discovered in 1972 in the East Murchison region and is wholly owned by BHP. When developed, the mine will be an open-cut mine with a maximum depth of 25 meters. A 1.2 million-ton-per-year treatment plant will be set up at the mine site to perform leaching, concentration, precipitation, and product packaging. The mined uranium ore will be transported to Kalgoorlie by road, followed by rail to a port in the Northern Territory or South Australia. Both states have the necessary approvals for storage and export of the radioactive mineral.

According to estimates made by the federal government, Western Australia has up to 10% of the world's known reserves of uranium, an amount valued at about $36 billion. Shook said that supplies of uranium are expected to run into deficit by 2015 and in fact, by 2030, the global supply is likely to fall short of the global demand by about 10,000 tons per year. Consequently, it can be safely concluded that the long-term prospects for uranium, and for BHP, are very bright. As large nations such as China and India embrace nuclear energy as an alternative to coal-based power, the demand for Australian uranium is expected to grow exponentially.

BHP is also seeking approval from the federal, South Australian and Northern Territory governments to implement an expansion project at the company's mining and processing facility at Olympic Dam in northern South Australia. The Olympic Dam deposit is the world's fourth-largest gold and copper deposit, and the largest known uranium deposit. The deposit also holds reserves of silver. The proposed expansion is an 11-year development project.

The expansion project includes the creation of a new open pit mine that will ultimately operate in tandem with the existing underground mine and increase BHP's ore production 600%. The facility's smelter will be expanded, and new hydrometallurgical plants and a concentrator will be constructed.

The existing nameplate design capacity of the Olympic Dam facility is 12 million tons per year, which will increase to 72 million tons per year after the proposed expansion. Uranium oxide production will increase from the existing 4,500 tons per year to 19,000 tons per year. Copper concentrate production will increase from 600,000 tons per year to 2.4 million tons per year, while refined copper production will increase from 235,000 tons per year to 750,000 tons per year. Gold bullion production will increase from 100,000 ounces per year to 800,000 ounces per year. Silver bullion production will increase from 800,000 ounces per year to 2.9 million ounces per year. The copper and uranium expansion processes will cost an estimated $20 billion.

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