BHP Billiton Limited (BHP Quick QuoteBHP - Free Report) announced that its board has approved capital investment of $2.9 billion in the South Flank project in central Pilbara, Western Australia. Consequently, the company added a major project to its portfolio. The project will replace production from the 80 million ton per annum (Mtpa) Yandi mine when it reaches the end of its economic life. It is due to become operational by 2021 and expected to produce ore for more than 25 years.

 

South Flank is a capital efficient project which promises attractive returns. South Flank iron ore will contribute to an increase in Western Australia Iron Ore (WAIO’s) average iron grade from 61% to 62%, and the overall proportion of lump from 25% to approximately 35%. It is anticipated to have a strip ratio in line with the WAIO average. This would establish it as a highly-competitive operation.

 

The project will expand the existing infrastructure at Mining Area C, and entails construction of an 80 Mtpa crushing and screening plant, an overland conveyor system, stockyard and train loading facilities, procurement of new mining fleet and substantial mine development and pre-strip work. The project will generate 2,500 construction jobs and more than 600 ongoing operational roles. It will enable BHP Billiton to benefit from price premiums for higher-quality lump and fines products.

 

In June 2017, BHP Billiton approved $184 million in initial funding for the South Flank project. BHP Billiton holds an 85% stake in Mining Area C and the South Flank project, with ITOCHU Minerals and Energy of Australia Pty Ltd and Mitsui Iron Ore Corporation Pty Ltd collectively owning the balance 15%.

 

 

This development comes on the heels of Fortescue Metals Group’s announcement to spend $1.27 billion in its Eliwana project in the Pilbara, to replace the Firetail mine which is close to the end of its life. It is likely to improve the average grade of its iron ore. Rio Tinto plc (RIO Quick QuoteRIO - Free Report) is expected to spend around $2.2 billion on replacement mines over the next three years including initial spending on the Koodaideri, West Angelas and Robe Valley developments in the Pilbara region.

 

These developments infuse confidence in the iron mining sector in Western Australia. Unlike the last massive ramp-up in production which led to a global glut of iron ore and subsequently led to slump in prices, these new mines are being brought on stream to replace exhausted reserves in older pits.

 

 

Over the last year, BHP Billiton’s shares yielded a return of 39.5%, outperforming 35.9% gain recorded by the industry. The company is gaining competency on the back of sturdier productivity and remains on track to deleverage balance sheet over time. The company is making its operations more efficient driven by smarter technology adoption across the entire value chain along with reducing capital and exploration expenses.

 

BHP Billiton currently carries a Zacks Rank #3 (Hold).

 

 

Some better-ranked stocks in the same industry are listed below:

 

Ternium S.A. (TX Quick QuoteTX - Free Report) pulled off an average positive earnings surprise of 50.23% over the last four quarters. Its shares have appreciated 39% in a year’s time. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Ingevity Corporation (NGVT Quick QuoteNGVT - Free Report) carries a Zacks Rank of #2 (Buy). The company recorded an average positive earnings surprise of 20.15% during the past four quarters. Its shares have surged 45.9% over the past year.

 

 

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