BHP Says Escondida Copper Output to Fall 30%

Output from the world's biggest copper mine, Escondida, will decline by 30% this fiscal year, BHP Billiton said on Wednesday, as it posted falls in quarterly production across its main commodities.
The cut in its forecast for Escondida was part of a surprisingly large drop of 14% in copper output in the March quarter. Iron ore and aluminium production also fell, and the company said it stood ready to halt operations as demand weakened.
"In the medium term, we expect that market conditions will remain uncertain," said BHP, which has been cutting production and shelving projects amid the worst global recession in decades.
"All our operations will remain under review. We will continue to take appropriate actions in any business that is cash negative and set to remain so, or where there is lack of demand," the company added in its production report.
Last year, the Escondida mine in Chile produced 1.2 million tonnes of copper, or just under 5% of global output, so a 30% drop equates to about 360,000t.
BHP owns 57.5% of the mine. Rio Tinto holds 30% and Mitsubishi Corp 10%. Rio has agreed to sell China's Chinalco half its stake.
A BHP spokeswoman said the company had initially anticipated Escondida production to slip by around 20-25% in the company's fiscal year to 30 June.
BHP said Escondida production had been hurt by lower ore grades and weaker milling operations, dragging its overall copper output down. Escondida has been steadily returning less copper since the June 2008 quarter, when BHP yielded 178,200t of metal in concentrate and 40,300t of cathode.
"The copper number is particularly of concern because copper is a bellwether of the wider state of the industrial commodities sector," said Andrew Harrington, Sydney-based mining analyst for the Patersons brokerage.
In contrast, Rio last week showed a 33% gain in quarterly copper production, boosted by higher output from other mines it owns.
"Escondida is still a problem for both BHP and Rio," said Gavin Wendt, a mining analyst for Fat Prophets in Sydney. "But Rio was able to offset that nicely with a better performance from other non-Escondida related mines."
Copper, a manufacturing staple in everything from toilet taps to computer chips, has shed more than 6% of its value this week, though the price is up nearly 50% since January, leading some analysts to suggest the worst of the commodities bust is over.
Imports of refined copper to China, the world's biggest consumer and a big customer of Chilean mines, rose to a record 296,843t in March, Customs figures showed on Wednesday, a record amount for the second consecutive month.
A proposal by BHP to buy Rio with shares worth up to $193bn at one point would have significantly lifted BHP's exposure to copper.
Speculation BHP may make a second offer resurfaced in the last week, though takeover regulations mean it must wait until 27 November 2009 unless it can get the support of Rio's board.
So far, BHP's biggest curtailment has been in nickel, with the closure of the Ravensthorpe nickel mine in Australia. Analysts say more cutbacks could follow in other commodities, such as alumina and aluminium.
Coal output in Australia already has turned down as Asian steel mills hit hard times, with metallurgical coal output down 25% from the previous quarter. Iron ore, another steel-making commodity, is also feeling the pinch.
BHP reported a 1% drop in iron ore production and 4% fall in aluminium year-on-year, down 2% and 4% respectively on the previous quarter. Nickel rose 10% year-on-year and was off 4% on the second quarter.
Iron ore sales by BHP into higher-priced long-term contracts were reduced to 72% of overall output from its Australian mines over the last three quarters as buyers asked to defer long-term sales contracts because of weakening demand.
All the deferred ore was being sold on the spot market, BHP said.