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Is BHP Billiton Limited set to develop a massive new iron ore mine?

BHP Billiton Limited (ASX: BHP) is reportedly studying an option to develop a massive new iron ore deposit in the Pilbara, according to Reuters.

The media agency says that according to the company and documents filed with environmental regulators, BHP is looking at developing the South Flank deposit, nearby BHP’s existing Mining Area C operation in the Pilbara in Western Australia, and which would create an open pit 26km long and 2km wide, according to several media reports.

The mine would replace lost production as the miner’s other operations age and reserves decline, rather than add to existing production.

We are currently studying a number of options to sustain our supply chain capacity for the future, and the South Flank deposit is one option under consideration,” a BHP spokeswoman has told Reuters.

At the current rate of production, the resource supporting Yandi’s 80-million-tonnes-per-year operation will need to be sustained from other ore sources at some stage over the next five to ten years,” the spokeswoman added.

Even if the mine does go ahead, the spokeswoman says that it doesn’t change BHP’s production guidance of 260 million tonnes this year and 290 million tonnes after that.

Reuters also says that BHP has submitted an environmental document to Western Australia’s state Environmental Protection Agency to determine the level of assessment required.

The world’s largest iron ore miner Rio Tinto Limited (ASX: RIO) is expected to decide on whether to go ahead with its US$1 billion Silvergrass iron ore mine this year. If the miner wants to hit its target of 360 million tonnes of annual production, then analysts say the Silvergrass mine has to go ahead.

Rio is targeting between 330 and 340 million tonnes of production in 2017.

Foolish takeaway

Should BHP and Rio forge ahead with their new iron ore mines, it’s likely another blow to Australia’s junior miners who could find it increasingly difficult to compete – as we wrote earlier this week.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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