BHP Billiton Group looks likely to go ahead with its South Flank iron ore development in Western Australia now that the state's new Labor government has ruled out any potential increase of taxes on iron ore leases.
Edgar Basto, asset president of BHP Billiton's Western Australian iron ore operations, told reporters March 29 on the sidelines of the Global Iron Ore and Steel Forecast conference in Perth, Australia, that an increase in taxes could cast doubt over the South Flank development, which is designed to replace the 80 million tonnes that will be lost from the Yandi deposit in the next five to 10 years.
"When you look at the potential of a policy that could create a significant erosion of our competitive position, e.g. US$1.3 billion per year in taxes, that was in a way going to weighten that decision," he said.
Basto said newly appointed Premier Mark McGowan had reassured BHP Billiton that no new taxes will be introduced despite the National Party still pushing for a hike in the taxes paid by the majors on their iron ore mining leases to A$5 per tonne, from 25 Australian cents per tonne currently.
"We've spoken with [McGowan] and he confirmed that they're ruling out additional taxes," he said. "We see as well that people understand an ill-effected policy like the one on taxes could jeopardize jobs and could jeopardize investment in the future of Western Australia and the industry."
As a result of the decision not to hike taxes, Basto said he sees a more stable investment environment in Western Australia.
South Flank, which lies just 10 kilometers from Area C, is currently in the study phase and BHP Billiton needs to look at securing approvals sooner rather than later if it wants to maintain production levels as Yandi ore is depleted.
BHP Billiton expects South Flank to have long-term sustaining capital costs of about US$4 per tonne.
"If we want to replace Yandi, which is in five to 10 years, then we need to start working now on the permits and all the things we need to get there," Basto said.
"I think the level of confidence we get from the new government really gives us the opportunity, and we have been informed that the government is more than supportive of the idea that we will continue with the study and we'll move to the next level. So yes, I think we will be proceeding with that."
BHP Billiton plans to maintain production across its operations by slowly ramping down Yandi and bringing South Flank into production. Basto said he does not see output declining during the changeover.
"We are doing it in a way where we maintain those production levels because, to influence our bottleneck, we want to make sure that we maximize the use of our installed capacity," he said.
Meanwhile, the company is currently in talks with its customers over the switch from Yandi ore to South Flank ore.