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BHP’s Olympic Dam to remain on hold

BHP Billiton’s (ASX: BHP) chief executive Andrew Mackenzie has confirmed that the company’s Olympic Dam mine expansion project will remain on hold due to the “challenging” conditions in the mining sector.

Unless a technological breakthrough was to occur, Mackenzie has stated that any expansion at Roxby Downs, located in South Australia’s far north, was unlikely to occur. Further to this, he said that an update would likely be provided on the shelved $28 billion project later in around a year.

Although the miner recognises “a lot of potential” in the Olympic Dam mine at a time where the investment climate is “reasonably favourable”, softer commodity prices are posing a challenge and the company is also looking at ways to make its production more competitive in the long term – which would “require a technological breakthrough” to occur.

The Australian Financial Review quoted Mackenzie as saying “Right now, mining is quite challenging and we are facing particular challenges… in the uranium markets as a result of some of the concerns around the world about nuclear power.”

Whilst the company has considered utilising heap-leaching technology – whereby commodities such as copper and uranium are extracted from ore via a series of chemical reactions – the technology has not yet been proven at a large scale, although BHP said it would attempt to advance it as an alternative to expanding the mine itself.

Foolish takeaway

Given that the proposed expansion could have quadrupled copper output to 750,000 tonnes per year (making it the world’s largest uranium mine), it is disappointing that the project had to remain shelved. However, in light of the tough mining conditions, BHP, like others in the sector such as Rio Tinto (ASX: RIO), is working to save costs and increase productivity in hopes of improving long-term sustainability and shareholder returns.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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