BHP Billiton 20-F 2009
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FOR THE FISCAL YEAR ENDED 30 JUNE 2009
Date of event requiring this shell company report
For the transition period from to
Securities registered or to be registered pursuant to section 12(b) of the Act.
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
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NoteChecking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
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Table of Contents
Form 20-F Cross Reference Table
1.1 Our business
We are the worlds largest diversified natural resources company. Our corporate objective is to create long-term value for shareholders through the discovery, development and conversion of natural resources, and the provision of innovative customer and market-focused solutions.
We pursue this objective through our unchanged strategy of investing in tier one assets that are large, low-cost and long-life to provide a balanced portfolio of export-oriented commodities:
We continue to invest in the future and have a deep inventory of growth assets.
Our operations and investments are designed to ensure the Group remains stable in the long term and responsive to market volatility in the short term.
The Group is headquartered in Melbourne, Australia, and consists of the BHP Billiton Limited Group and the BHP Billiton Plc Group as a combined enterprise, following the completion of the Dual Listed Company (DLC) merger in June 2001. BHP Billiton Limited and BHP Billiton Plc have each retained their separate corporate identities and maintained their separate stock exchange listings, but they are operated and managed as if they are a single unified economic entity, with their boards and senior executive management comprising the same people.
BHP Billiton Limited has a primary listing on the Australian Securities Exchange (ASX) in Australia. It has secondary listings on the Frankfurt Stock Exchange in Germany and the Swiss Stock Exchange in Switzerland and has notified its intention to delist from both these exchanges. We expect to complete these delistings in 2010. BHP Billiton Plc has a primary listing on the London Stock Exchange (LSE) in the UK and a secondary listing on the Johannesburg Stock Exchange in South Africa. In addition, BHP Billiton Limited American Depositary Receipts (ADRs) and BHP Billiton Plc ADRs trade on the New York Stock Exchange (NYSE) in the US.
As at 30 June 2009, we had a market capitalisation of approximately US$144 billion. For the year ended 30 June 2009, we reported net operating cash flow of US$18.9 billion, net profit attributable to shareholders of US$5.9 billion and revenue of US$50.2 billion. We have approximately 99,000 employees and contractors working in more than 100 operations in over 25 countries.
We operate nine businesses, called Customer Sector Groups (CSGs), which are aligned with the commodities we extract and market:
1.2 Chairmans Review
By any measure, this has been an extraordinary year.
The global financial crisis has created the worst business environment the world has faced in more than 60 years. World economic activity contracted dramatically and commodity prices fell sharply. Accompanying this, volatility has been high and should remain for the immediate future. While the global economy is showing signs of stabilising, the large developed economies are not expected to show real growth until at least the end of 2010.
BHP Billitons strategy has served us well during these volatile times. Since the merger of BHP and Billiton in 2001, we have focused on a few key fundamentals. These include owning and operating large, low-cost, long-life tier one assets; a commitment to a solid A credit rating; a deep inventory of growth projects; and working hard to be leaders in safety, environmental management and community engagement.
While low commodity prices and less demand for our products led to a fall in profits, our resolute focus on our long-term strategy delivered record operating cash flow of almost US$19 billion, profit from operations, excluding exceptional items, of US$18.2 billion, and margins on this profit of more than 40 per cent. Dividends were increased by 17.1 per cent to 82 US cents per share. We have enviable balance sheet strength. At 30 June 2009, gearing was 12.1 per cent and we have an A credit rating with significant funding capacity.
Despite producing strong operating and financial performance during a challenging year, our safety performance was simply unacceptable. This year, we had seven fatalities. The death of a family member at work has a devastating and long-lasting impact not only on the immediate family, but also on a wide community of relatives, friends and work colleagues. The Board has reinforced its emphasis on management creating a workplace free of injury.
In environmental management, the immediate issue facing the world is climate change. BHP Billiton shares the view that mainstream science is correct in drawing attention to the high risks associated with unmitigated climate change. However, we also believe that the problem is solvable and strongly support a global regime that is endorsed by both developed and major developing countries and provides the clarity and stability necessary to allow investment in carbon abatement activities to occur. We are determined to play our part and see business leadership as part of our role in achieving low carbon growth. To this end, we support key initiatives like the establishment of binding commitments for all developed and major developing countries.
We remain committed to prudently investing for the future. This is reflected in the agreement we signed with Rio Tinto in June this year to create an iron ore production joint venture in Western Australia. This joint venture represents a significant, strategic investment for the Group that provides us with the opportunity to capture significant synergies that can only come through this unique partnership. The agreement is non-binding and pre-conditions for its formation include regulatory, relevant governmental and shareholder approvals from both Rio Tinto and BHP Billiton shareholders.
Our ability to fund opportunities like these and the Groups consistent, solid financial performance during this period is testament to the ability of Marius Kloppers and his team. Over the past five years, we have delivered Total Shareholder Returns(1) of 220 per cent, outperforming the FTSE 100, ASX 100 and our peers. There are very few companies in any sector with such solid financial and operating strength.
Clearly, as a Board, we have a responsibility to shareholders to ensure we attract, develop and retain the talented people we need to run our business. The way we reward and recognise those people is an important part of how we do this. Our reward and recognition arrangements are set out in the Remuneration Report. From your
Boards point of view, the critical issue is that shareholders have the ability to fully understand remuneration arrangements, to monitor them and to express their opinion on their value. Aligning executive remuneration with shareholder value creation is fundamental.
Our program of Board renewal continued this year. David Jenkins, after nine years on the Board, will retire after the Annual General Meetings. David has made an outstanding contribution to the work of the Board; and on your behalf, I would like to thank David and wish him well for the future.
We also appointed Wayne Murdy as a non-executive Director. Waynes experience will be invaluable to your Board given his background as Chairman and Chief Executive Officer of Newmont Mining Corporation and 30 years experience in the mining and petroleum industries.
We remain committed to achieving the highest level of governance and continue to believe that there is a fundamental link between high-quality governance and the creation of shareholder value. We also recognise that governance is not just a matter for the Board, but that a good governance culture must be fostered throughout the Group.
Undoubtedly, the past year has been difficult. The economic landscape has changed and organisations have had to adjust to meet these unprecedented economic challenges. In many sectors of the economy we have witnessed quite dramatic falls in demand, and there have been large cutbacks in production across the commodities sector. We were not immune from this. We reduced production levels from many of our operations in response to the lower global commodities demand and in some instances also made difficult decisions to indefinitely suspend or close operations.
Looking ahead, economies around the world are responding to government-driven economic stimulus packages, the impact of which is difficult to measure; and consequently, there remains a level of uncertainty about the rate of economic growth over the short term. Having said that, there is evidence in the US, UK, Europe and Australia of increasing stability in financial systems and economies.
China, which has been the major source of demand for commodities in 2009, is showing early signs of improvement, providing strong support for short-term economic growth.
Over the longer term, we believe that emerging economies such as China and India will contribute the majority of world economic growth as they continue to industrialise, which will see demand for commodities continue to grow.
BHP Billiton maintains its unique position in the resources industry. We are able to generate above average returns in this part of the cycle, continue to invest in growth and are well-placed to take advantage of any upturn.
Finally, this will be my last report to you as Chairman.
Jac Nasser will succeed me when I retire. It is your Directors view that the choice of the Chairman is the responsibility of the Board. This is why, over the past 18 months, the Board itself has conducted the succession process for the new Chairman and when the Board met, John Buchanan, the Senior Independent Director for BHP Billiton Plc, chaired the meetings. Jac has outstanding skills and experience and will be an excellent Chairman. To ensure an orderly transition, the Board has asked me to stand for re-election at the upcoming Annual General Meetings, although I will not serve a full term and expect to retire from the Board in early 2010.
I want to acknowledge and sincerely thank you, our shareholders, for your support over the 13 years I have been on the BHP Billiton Board and my 10 years as Chairman. It has always been my underpinning principle to respect shareholders as the owners of the Company, as it is to you that I am accountable for the governance and performance of BHP Billiton. It has been an outstanding highlight in my life and an extraordinary privilege to serve you as Chairman.
1.3 Chief Executive Officers Report
The 2009 financial year was an interesting one as it was divided into distinct periodsthe first with rapid growth in demand for products at record prices, and the second in which a global de-stocking cycle, following the global financial crisis, resulted in diminished demand and lower prices.
With aggressive growth plans following the preceding years record world economic growth in our industry, many of our peers and other companies were forced to make an about-turn in strategy in response to the global economic downturn. In many cases, long-term value was sacrificed as a result of short-term pressures.
While the shift in demand and prices also presented challenges for BHP Billiton, our long-standing strategy of focusing on a diversified portfolio of tier one, low-cost, long-life assets, allowed us to continue to focus on the long-term creation of value, in line with our corporate objective.
Our workforce contains many talented people who help make this Group what it is today: a premier global organisation. Given this, I am personally deeply saddened to report that this year seven deaths occurred at our operations. Any injury is unacceptable and these fatalities highlight the need to do more as an organisation to protect the health and safety of our people. To this end, we have undertaken a variety of measures, which have included reviews of our management procedures and safety systems.
Encouragingly, seven of our Customer Sector Groups reported improvements in Total Recordable Injury Frequency performance ranging from seven to 44 per cent. Twenty-four BHP Billiton sites completed 12 months of operations without a Lost Time Injury. In aggregate, this amounts to more than 23 million hours of work without a Lost Time Injury. Our challenge is to replicate this performance throughout our business and we must remain diligent in continuing our work towards zero workplace injuries.
Managing through the cycle
I have already stated that during the year, we stayed true to our strategy of focusing on long-term value creation. Operationally, however, we continued to seek ways that allow us to be responsive in the short term. For example, very early on in the global financial crisis and consistent with the way we have always managed our business, we reiterated our commitment to taking swift action in any operation that was cash negative and set to remain so, or for which we did not have sufficient customers for the particular product.
We acted quickly to curtail production across our metallurgical coal, manganese, nickel and iron ore pellet operations. Disappointingly, this slowdown in demand, coupled with the dramatic fall in nickel prices, led to the indefinite suspension of our Ravensthorpe operation in Western Australia. I can assure you that these decisions were carefully considered and that we are ever mindful of the effects on everyone involved.
While difficult decisions to reduce staff numbers were taken in some areas, we have continued to implement programs that work to attract and retain skilled people. For example, in May we announced the introduction of uniform, minimum paid parental leave benefits across our operations. The introduction of this initiative actively encourages broad inclusion in the workplace, which we believe will ultimately give us a strong competitive edge.
The strong cash flow from our existing portfolio along with low levels of financial gearing, enabled us to continue with our stated strategy of investing in our business throughout the cycle, with another four projects constituting US$5.9 billion of investment being approved during the year. Together with previously approved projects it brings our pipeline of projects in execution to approximately US$14 billion. We intend to invest approximately US$10 billion in capital and exploration expenditure in FY2010.
Additionally, our strong cash flow and low gearing enabled us to contemplate other non-organic growth opportunities. In this regard, we are very pleased with the recent non-binding agreement with Rio Tinto to combine our iron ore businesses in Western Australia in a 50-50 owned production joint venture. This joint venture will see us invest a further US$5.8 billion in this business beyond the already sanctioned projects.
The major economies are starting to rebuild their inventories in sequence, led by an early recovery in China; and we may see a more predictable demand scenario for our products in the coming financial year. However, we do not expect a return to the same buoyant demand conditions that prevailed before the global financial crisis, or a return to record global growth rates within our forecasting horizon.
Given that China represents approximately 20 per cent of BHP Billitons revenue, and up to 50 per cent of the worlds raw material consumption, it merits additional comment. Chinas reduction of lending controls in November 2008 has facilitated an increase in real estate and mortgage lending, which in turn has supported an increase in construction and increased demand for products we supply. Also, the infrastructure stimulus measures announced to improve Chinas rail, road and air transport links will, in due course, create a need for raw materials. Therefore, we expect the resource intensive nature of Chinese growth to substantially drive global raw materials consumption. The investment plans that I detailed earlier will continue to supply product to meet this demand.
On a final note, I wish to thank all of BHP Billitons employees and contractors for their continued commitment, which has enabled the Group to deliver value in very challenging times.
In summary, our Group remains in an enviable position in its industry. Our low gearing, strong cash flow and portfolio of investment options positions us well to create value from the long-term demand for our commodities.
1.4.1 Financial information
Our selected financial information reflects the operations of the BHP Billiton Group, and should be read in conjunction with the 2009 financial statements, together with the accompanying notes.
We prepare our financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board, and as outlined in note 1 Accounting policies to the financial statements in this Annual Report. We publish our consolidated financial statements in US dollars.
1.4.2 Operational information
Our Board and Group Management Committee monitor a range of financial and operational performance indicators, reported on a monthly basis, to measure performance over time. We also monitor a comprehensive set of health, safety, environment and community contribution indicators.
1.5 Risk factors
We believe that, because of the international scope of our operations and the industries in which we are engaged, there are numerous factors which may have an effect on our results and operations. The following describes the material risks that could affect the BHP Billiton Group.
Fluctuations in commodity prices and impacts of the global financial crisis may negatively impact our results
The prices we obtain for our oil, gas, minerals and other commodities are determined by, or linked to, prices in world markets, which have historically been subject to substantial variations. The Groups usual policy is to sell its products at the prevailing market prices. The diversity provided by the Groups broad portfolio of commodities may not fully insulate the effects of price changes. Fluctuations in commodity prices can occur due to sustained price shifts reflecting underlying global economic and geopolitical factors, industry demand and supply balances, product substitution and national tariffs. The global financial crisis has severely impacted commodity markets in terms of lower prices, reduced demand and increased price volatility. The ongoing uncertainty and impact on global economic growth, particularly in the developed economies, may impact future demand and prices for commodities. The influence of hedge and other financial investment funds participating in commodity markets has increased in recent years contributing to higher levels of price volatility. The impact of potential longer-term sustained price shifts and shorter-term price volatility creates the risk that our financial and operating results and asset values will be materially and adversely affected by unforeseen declines in the prevailing prices of our products.
We seek to maintain a solid A credit rating as part of our strategy. Notwithstanding our financial and capital management programs the ongoing effects of the global financial crisis may impact our future cash flows and credit rating.
Our profits may be negatively affected by currency exchange rate fluctuations
Our assets, earnings and cash flows are influenced by a wide variety of currencies due to the geographic diversity of the countries in which we operate. Fluctuations in the exchange rates of those currencies may have a significant impact on our financial results. The US dollar is the currency in which the majority of our sales are denominated. Operating costs are influenced by the currencies of those countries where our mines and processing plants are located and also by those currencies in which the costs of imported equipment and services are determined. The Australian dollar, South African rand, Chilean peso, Brazilian real and US dollar are the most important currencies influencing our operating costs. Given the dominant role of the US currency in our affairs, the US dollar is the currency in which we present financial performance. It is also the natural currency for borrowing and holding surplus cash. We do not generally believe that active currency hedging provides long-term benefits to our shareholders. We may consider currency protection measures appropriate in specific commercial circumstances, subject to strict limits established by our Board. Therefore, in any particular year, currency fluctuations may have a significant impact on our financial results.
Failure to discover new reserves, maintain or enhance existing reserves or develop new operations could negatively affect our future results and financial condition
The increased demand for our products and increased production rates from our operations in recent years has resulted in existing reserves being depleted at an accelerated rate. Because our revenues and profits are related to our oil and gas and minerals operations, our results and financial conditions are directly related to the success of our exploration and acquisition efforts, and our ability to replace existing reserves. The depletion of reserves has necessitated increased exploration adjacent to established operations and development of new operations in less-developed countries. Additionally these activities may increase land tenure, infrastructure and related political risks. A failure in our ability to discover new reserves, enhance existing reserves or develop new operations in sufficient quantities to maintain or grow the current level of our reserves could negatively affect our results, financial condition and prospects.
There are numerous uncertainties inherent in estimating ore and oil and gas reserves, and geological, technical and economic assumptions that are valid at the time of estimation may change significantly when new information becomes available. The impacts of the global financial crisis may impact economic assumptions related to reserve recovery and require reserve restatements. Reserve restatements could negatively affect our reputation, results, financial condition and prospects.
Reduction in Chinese demand may negatively impact our results
The Chinese market has become a significant source of global demand for commodities. In calendar year 2008, China represented 49 per cent of global seaborne iron ore demand, 28 per cent of copper demand, 28 per cent of nickel demand and 18 per cent of energy demand. Chinas demand for these commodities has been driving global materials demand over the past decade.
The strong economic growth and infrastructure development in China of recent years has been tempered by the global financial crisis. Sales into China generated US$9.9 billion (FY2008: US$11.7 billion), or 19.7 per cent (FY2008: 19.6 per cent), of our revenue in the year ended 30 June 2009. A continued slowing in Chinas economic growth could result in lower prices and demand for our products and therefore reduce our revenues.
In response to its increased demand for commodities, China is increasingly seeking strategic self-sufficiency in key commodities, including investments in existing businesses or new developments in other countries. These investments may adversely impact future commodity demand and supply balances and prices.
Actions by governments or political events in the countries in which we operate could have a negative impact on our business
We have operations in many countries around the globe, some of which have varying degrees of political and commercial stability. We operate in emerging markets, which may involve additional risks that could have
an adverse impact upon the profitability of an operation. These risks could include terrorism, civil unrest, nationalisation, renegotiation or nullification of existing contracts, leases, permits or other agreements, and changes in laws and policy, as well as other unforeseeable risks. Risks relating to bribery and corruption may be prevalent in some of the countries in which we operate. If one or more of these risks occurs at one of our major projects, it could have a negative effect on the operations in those countries as well as the Groups overall operating results and financial condition.
Our business could be adversely affected by new government regulation, such as controls on imports, exports and prices, new forms or rates of taxation and royalties. Increasing requirements relating to regulatory, environmental and social approvals can potentially result in significant delays in construction and may adversely impact upon the economics of new mining and oil and gas projects, the expansion of existing operations and results of our operations.
Infrastructure such as rail, ports, power and water, is critical to our business operations. We have operations or potential development projects in countries where government provided infrastructure or regulatory regimes for access to infrastructure, including our own privately operated infrastructure, may be inadequate or uncertain. These may adversely impact the efficient operations and expansion of our businesses.
In South Africa, the Mineral and Petroleum Resources Development Act (2002) (MPRDA) came into effect on 1 May 2004. The law provides for the conversion of existing mining rights (so called Old Order Rights) to rights under the new regime (New Order Rights) subject to certain undertakings to be made by the company applying for such conversion. The Mining Charter requires that mining companies achieve 15 per cent ownership by historically disadvantaged South Africans of South African mining assets by 1 May 2009 and 26 per cent ownership by 1 May 2014. If we are unable to convert our South African mining rights in accordance with the MPRDA and the Mining Charter, we could lose some of those rights. Where new order mining rights are obtained under the MPRDA, these rights may not be equivalent to the old order mining rights in terms of duration, renewal, rights and obligations.
We operate in several countries where ownership of land is uncertain and where disputes may arise in relation to ownership. In Australia, the Native Title Act (1993) provides for the establishment and recognition of native title under certain circumstances. In South Africa, the Extension of Security of Tenure Act (1997) and the Restitution of Land Rights Act (1994) provide for various landholding rights. Such legislation could negatively affect new or existing projects.
We may not be able to successfully integrate our acquired businesses
We have grown our business in part through acquisitions. We expect that some of our future growth will stem from acquisitions. There are numerous risks encountered in business combinations. These include adverse regulatory conditions and obligations, commercial objectives not achieved due to minority interests, unforeseen liabilities arising from the acquired businesses, retention of key staff, anticipated synergies and cost savings being delayed or not being achieved, uncertainty in sales proceeds from planned divestments, and planned expansion projects are delayed or higher cost than anticipated. These factors could negatively affect our financial condition and results of operations.
We may not recover our investments in mining and oil and gas projects
Our operations may be impacted by changed market or industry structures, commodity prices, technical operating difficulties, inability to recover our mineral, oil or gas reserves and increased operating cost levels. These may impact the ability for assets to recover their historical investment and may require financial write-downs adversely impacting our financial results.
Our non-controlled assets may not comply with our standards
Some of our assets are controlled and managed by joint venture partners or by other companies. Some joint venture partners may have divergent business objectives which may impact business and financial results. Management of our non-controlled assets may not comply with our management and operating standards, controls and procedures (including health, safety, environment). Failure to adopt equivalent standards, controls and procedures at these assets could lead to higher costs and reduced production and adversely impact our results and reputation.
Operating cost pressures and shortages could negatively impact our operating margins and expansion plans
The strong commodity cycle of past years led to increasing cost pressures across the resources industry and shortages in skilled personnel, contractors, materials and supplies that are required as critical inputs to our existing operations and planned developments. Recent rapid declines in commodity prices without commensurate cost declines have resulted in operating margins being reduced. Notwithstanding our efforts to reduce costs and a number of key cost inputs being commodity price-linked, the inability to reduce costs and a timing lag may impact our operating margins for an extended period.
Changing industrial relations legislation such as the Australian Fair Work Act 2009 may impact workforce flexibility, productivity and costs. Labour unions may seek to pursue claims under the new framework. Industrial action may impact our operations resulting in lost production and revenues.
A number of our operations are energy or water intensive and, as a result, the Groups costs and earnings could be adversely affected by rising costs or by supply interruptions. These could include the unavailability of energy, fuel or water due to a variety of reasons, including fluctuations in climate, significant increase in costs, inadequate infrastructure capacity, interruptions in supply due to equipment failure or other causes and the inability to extend supply contracts on economical terms.
These factors have led, and could continue to lead, to increased operating costs at existing operations.
Increased costs and schedule delays may impact our development projects
Although we devote significant time and resources to our project planning, approval and review process, we may underestimate the cost or time required to complete a project. In addition, we may fail to manage projects as effectively as we anticipate, and unforeseen challenges may emerge. Any of these may result in increased capital costs and schedule delays at our development projects impacting anticipated financial returns.
Health, safety, environmental and community exposures and related regulations may impact our operations and reputation negatively
The nature of the industries in which we operate means that our activities are highly regulated by health, safety and environmental laws. As regulatory standards and expectations are constantly developing, we may be exposed to increased litigation, compliance costs and unforeseen environmental remediation expenses.
Potential health, safety, environmental and community events that may materially impact our operations include rockfall incidents in underground mining operations, aircraft incidents, light vehicle incidents, explosions or gas leaks, incidents involving mobile equipment, uncontrolled tailings breaches, escape of polluting substances, community protests or civil unrest.
Longer-term health impacts may arise due to unanticipated workplace exposures by employees or site contractors. These effects may create future financial compensation obligations.
We provide for operational closure and site remediation. We have closure plans for all of our operating and closed facilities. Changes in regulatory or community expectations may result in the relevant plans not being adequate. This may impact financial provisioning and costs at the affected operations.
We contribute to the communities in which we operate by providing skilled employment opportunities, salaries and wages, taxes and royalties and community development programs. Notwithstanding these actions, local communities may become dissatisfied with the impact of our operations, potentially affecting costs and production, and in extreme cases viability.
Legislation requiring manufacturers, importers and downstream users of chemical substances, including metals and minerals, to establish that the substances can be used without negatively affecting health or the environment may impact our operations and markets. These potential compliance costs, litigation expenses, regulatory delays, remediation expenses and operational costs could negatively affect our financial results.
We may continue to be exposed to increased operational costs due to the costs and lost time associated with the HIV/AIDS and malaria infection rate mainly within our African workforce. Because we operate globally, we may be affected by potential influenza outbreaks, such as A(H1N1) and avian flu, in any of the regions in which we operate.
Despite our best efforts and best intentions, there remains a risk that health, safety, environmental and/or community incidents or accidents may occur that may negatively impact our reputation or licence to operate.
Unexpected natural and operational catastrophes may impact our operations
We operate extractive, processing and logistical operations in many geographic locations both onshore and offshore. Our operational processes and geographic locations may be subject to operational accidents such as port and shipping incidents, fire and explosion, pitwall failures, loss of power supply, railroad incidents and mechanical failures. Our operations may also be subject to unexpected natural catastrophes such as earthquakes, flood, hurricanes and tsunamis. Based on our claims, insurance premiums and loss experience, our risk management approach changed during the year to maintaining self-insurance for property damage and business interruption related risk exposures. Existing business continuity plans may not provide protection for all of the costs that may arise from such events. The impact of these events could lead to disruptions in production and loss of facilities more than offsetting premiums saved and adversely affecting our financial results.
Climate change and greenhouse effects may adversely impact our operations and markets
We are a major producer of carbon-related products such as energy and metallurgical coal, oil, gas, and liquefied natural gas. Carbon based energy is also a significant input in a number of the Groups mining and processing operations.
A number of governments or governmental bodies have introduced or are contemplating regulatory change in response to the impacts of climate change. The December 1997 Kyoto Protocol established a set of greenhouse gas emission targets for developed countries that have ratified the Protocol. The European Union Emissions Trading System (EU ETS), which came into effect on 1 January 2005, has had an impact on greenhouse gas and energy-intensive businesses based in the EU. Our Petroleum assets in the UK are currently subject to the EU ETS, as are our EU based customers. Elsewhere, there is current and emerging climate change regulation that will affect energy prices, demand and margins for carbon intensive products. The Australian Governments plan of action on climate change includes the introduction of a national emissions trading scheme by 2011 and a mandatory renewable energy target of 20 per cent by the year 2020. From a medium- to long-term perspective, we are likely to see some changes in the cost position of our greenhouse-gas-intensive assets and energy-intensive assets as a result of regulatory impacts in the countries in which we operate. These regulatory mechanisms may impact our operations directly or indirectly via our suppliers and customers. Inconsistency of
regulations particularly between developed and developing countries may also change the competitive position of some of our assets. Assessments of the potential impact of future climate change regulation are uncertain given the wide scope of potential regulatory change in the many countries in which we operate.
The physical impacts of climate change on our operations are highly uncertain and will be particular to the geographic circumstances. These may include changes in rainfall patterns, water shortages, rising sea levels, increased storm intensities and higher average temperature levels. These effects may adversely impact the cost, production and financial performance of our operations.
Our human resource talent pool may not be adequate to support our growth
Our existing operations and our pipeline of development projects, when activated, require highly skilled staff with relevant industry and technical experience. The inability of the Group and industry to attract and retain such people may adversely impact our ability to adequately meet demand in projects and fill roles in existing operations. Skills shortages in engineering, technical service, construction and maintenance contractors may impact activities. These shortages may adversely impact the cost and schedule of development projects and the cost and efficiency of existing operations.
Breaches in our information technology (IT) security processes may adversely impact the conduct of our business activities
We maintain global IT and communication networks and applications to support our business activities. IT security processes protecting these systems are in place and subject to assessment as part of the review of internal control over financial reporting. These processes may not prevent future malicious action or fraud by individuals or groups, resulting in the corruption of operating systems, theft of commercially sensitive data, misappropriation of funds and disruptions to our business operations.
A breach in our governance processes may lead to regulatory penalties and loss of reputation
We operate in a global environment straddling multiple jurisdictions and complex regulatory frameworks. Our governance and compliance processes, which include the review of control over financial reporting, may not prevent future potential breaches of law, accounting or governance practice. Our Code of Business Conduct and anti-trust standards may not prevent instances of fraudulent behaviour and dishonesty nor guarantee compliance with legal or regulatory requirements. This may lead to regulatory fines, litigation, loss of operating licences or loss of reputation.
1.6 Forward looking statements
This Annual Report contains forward looking statements, including statements regarding:
Forward looking statements can be identified by the use of terminology such as intend, aim, project, anticipate, estimate, plan, believe, expect, may, should, will, continue or similar words. These statements discuss future expectations concerning the results of operations or financial condition, or provide other forward looking statements.
These forward looking statements are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results to differ materially from those expressed in the statements contained in this Annual Report. Readers are cautioned not to put undue reliance on forward looking statements.
For example, our future revenues from our operations, projects or mines described in this Annual Report will be based, in part, upon the market price of the minerals, metals or petroleum produced, which may vary significantly from current levels. These variations, if materially adverse, may affect the timing or the feasibility of the development of a particular project or the expansion of certain facilities or mines.
Other factors that may affect the actual construction or production commencement dates, costs or production output and anticipated lives of operations, mines or facilities include our ability to profitably produce and transport the minerals, petroleum and/or metals extracted to applicable markets; the impact of foreign currency exchange rates on the market prices of the minerals, petroleum or metals we produce; activities of government authorities in some of the countries where we are exploring or developing these projects, facilities or mines, including increases in taxes, changes in environmental and other regulations and political uncertainty; and other factors identified in the description of the risk factors above.
We cannot assure you that our estimated economically recoverable reserve figures, closure or divestment of such operations or facilities, including associated costs, actual production or commencement dates, cost or production output or anticipated lives of the projects, mines and facilities discussed in this Annual Report, will not differ materially from the statements contained in this Annual Report.
Except as required by applicable regulations or by law, the Group does not undertake any obligation to publicly update or review any forward looking statements, whether as a result of new information or future events.
2.1 BHP Billiton locations
We extract and process minerals, oil and gas from our production operations located primarily in Australia, the Americas and southern Africa. We sell our product globally with our marketing activities centralised in Singapore, The Hague and Antwerp.
Diamonds and Specialty Products
Stainless Steel Materials
2.2.1 History and development
Since 29 June 2001, we have operated under a Dual Listed Company (DLC) structure. Under the DLC structure, the two parent companies, BHP Billiton Limited (formerly BHP Limited and before that The Broken Hill Proprietary Company Limited) and BHP Billiton Plc (formerly Billiton Plc) operate as a single economic entity, run by a unified Board and management team. More details of the DLC structure are located under section 2.11 of this Report.
BHP Billiton Limited was incorporated in 1885 and is registered in Australia with ABN 49 004 028 077. BHP Billiton Plc was incorporated in 1996 and is registered in England and Wales with registration number 3196209. Successive predecessor entities to BHP Billiton Plc have operated since 1860.
The registered office of BHP Billiton Limited is 180 Lonsdale Street, Melbourne, Victoria 3000, Australia, and its telephone number is 1300 55 47 57 (within Australia) or +61 3 9609 3333 (outside Australia). The registered office of BHP Billiton Plc is Neathouse Place, London SW1V 1BH, UK, and its telephone number is +44 20 7802 4000.
2.2.2 Petroleum Customer Sector Group
Our Petroleum CSG is a global oil and gas business employing more than 1,500 people worldwide and headquartered in Houston, Texas. We have producing assets in six countries and exploration opportunities in a further six countries.
Our financial strength allows us to reinvest in our long-term growth through exploration even through the most challenging of economic times. During FY2009, we have captured new exploration interests in countries such as India, supplemented our existing portfolio in Australia and the Gulf of Mexico, and executed seismic programs in countries such as Malaysia. BHP Billiton Petroleum continues to build its capability as an operator of some of the worlds largest and technically challenging projects. We have delivered the Shenzi deepwater, tension-leg platform ahead of schedule and within budget.
We continue to deliver production growth through delivery of new projects and ongoing focus on driving base performance. During FY2009, first production was achieved from five projectsNeptune, Shenzi and Atlantis North (all US) and North West Shelf Train 5 and Angel (both Australia). We have realised annual production volumes of 137.2 million barrels of oil equivalent in FY2009. This represents an increase of 6 per cent over the previous financial year.
We sell our crude oil production to refiners around the world at market prices. Gas is generally marketed under long-term domestic contracts and we export LNG under long-term contracts. Almost three-quarters of our contracted LNG sales volumes are subject to contracts that contain provisions allowing prices to be reset within the next four years. However, more than a quarter of our currently contracted volumes are subject to long-term fixed-price contracts, some of which were priced in a lower price environment.
Our production assets are as follows:
Together with our 50-50 joint venture partner, Esso Australia, a subsidiary of ExxonMobil, we have been producing oil and gas from Bass Strait, off the south-eastern coast of the Australian mainland, for 40 years, having participated in the original discovery of hydrocarbons there in 1965. We dispatch the majority of our Bass Strait crude oil and condensate production to refineries along the east coast of Australia. Gas is piped ashore to our Longford processing facility, from where we sell our production to domestic distributors under contracts with periodic price reviews.
North West Shelf
We are a joint venture participant in the North West Shelf Project in Western Australia. The North West Shelf Project was developed in phases: the domestic gas phase, which supplies gas to the Western Australian domestic market mainly under long-term contracts, and a series of LNG expansion phases, which supply LNG to buyers in Japan, Korea and China under a series of long-term contracts. We also produce LPG and condensate.
We are also a joint venture participant in four nearby oil fields. Both the North West Shelf gas and oil ventures are operated by Woodside Petroleum Ltd.
Gulf of Mexico
Our production in the Gulf of Mexico has continued to expand, with the Neptune and Shenzi projects coming on line in FY2009. We operate three fields in the Gulf of Mexico (Neptune, Shenzi/Genghis Khan and consolidated operations in the West Cameron area), and hold non-operating minority interests in a further three fields (Atlantis, Mad Dog and Genesis). We also own 25 per cent and 22 per cent, respectively, of the companies that own and operate the Caesar oil pipeline and the Cleopatra gas pipeline which transport oil and gas from the Green Canyon area, where a number of our fields are located, to connecting pipelines that transport product to the mainland. We deliver our oil production to refineries along the Gulf Coast of the United States.
In early September 2008, the Mad Dog facility suffered damage from Hurricane Ike, including the loss of a portion of the drilling derrick, which sat atop the spar facility. Production from the facility resumed in late October 2008, and engineering studies to review replacement options for the lost drilling equipment are currently being conducted by the operator.
We hold a 38.5 per cent working interest in and operate the Zamzama gas project in Sindh province of Pakistan. The existing capacity of Zamzama is 500 million cubic feet of gas per day and 3,350 barrels of condensate per day. Both gas and condensate are sold domestically.
Liverpool Bay and Bruce/Keith
The Liverpool Bay integrated development consists of six offshore gas and oil fields in the Irish Sea, the Point of Ayr onshore processing plant in North Wales, and associated infrastructure. We deliver all of the Liverpool Bay gas by pipeline to E.ONs Connahs Quay power station. We own 46 per cent of and operate Liverpool Bay. We also hold a 16 per cent non-operating interest in the Bruce oil and gas field in the North Sea and operate the Keith field, a subsea tie-back, which is processed via the Bruce platform facilities.
Our Algerian assets consist of our effective 45 per cent interest in the Ohanet wet gas development and our 45 per cent interest in ROD, the production sharing contract which consists of six satellite oil fields that pump oil back to a dedicated processing train.
We are the operator of the Stybarrow project (50 per cent our share), a nine well subsea development in approximately 825 metres of water approximately 65 kilometres offshore north Western Australia. The project uses a floating production storage and offtake facility with capacity of approximately 80 thousand barrels of oil per day.
We are the operator of the Griffin project (45 per cent our share) where oil and gas are produced via the Griffin Venture, a floating production storage and offtake facility. We pipe natural gas to shore, where it is delivered directly into a pipeline and sold domestically. The Griffin Venture will cease production in October 2009 as the facility reaches the end of its useful life. We also operate the Minerva gas field located offshore Victoria in which we hold a 90 per cent interest.
Trinidad and Tobago
The Greater Angostura project is an integrated oil and gas development located offshore east Trinidad. We are the operator of the field and have a 45 per cent interest in the production sharing contract for the project.
Information on Petroleum operations
Significant oil and gas assets
Production and reserve information for our most significant oil and gas assets are listed in the table below:
The following table contains additional details of our production operations. This table should be read in conjunction with the production (see section 2.3.1) and reserve tables (see section 2.14.1).
North West Shelf North Rankin gas compression project
In March 2008, the Board approved the North West Shelf gas compression project to recover remaining lower pressure gas from the North Rankin and Perseus gas fields. A new gas compression platform, North Rankin B, capable of processing 2,500 million cubic feet of gas per day will be constructed adjacent to the existing North Rankin A platform, 135 kilometres offshore from Karratha on the northwest coast of Western Australia. The two platforms will be connected by a 100 metre bridge and operate as a single facility. Our 16.67 per cent share of development costs is approximately US$850 million. First gas is expected in 2012.
North West Shelf Cossack, Wanaea, Lambert, Hermes (CWLH) life extension
In December 2008, approval was announced to undertake a redevelopment project to replace and refurbish CWLH facilities because the existing operation had performed above expectation and had an expected field life much longer than originally planned. The project consists of the replacement of the existing floating production storage and offtake vessel and selected refurbishment of existing subsea infrastructure and the existing riser turret mooring. Our 16.67 per cent share of the cost is approximately US$245 million. First production through the redeveloped facilities is expected in 2011.
In July 2007, the Board approved the Pyrenees project to develop the WA-12-R permit portion of the Crosby, Stickle and Ravensworth oil fields in the Exmouth Sub-basin, off the northwest coast of Western Australia. Project costs for the WA-12-R permit portion of the Pyrenees development are approximately US$1.7 billion (approximately US$1.2 billion our share). The WA-155-P permit portion of the Pyrenees project was approved in November 2007, incorporating the remainder of the Ravensworth field as it straddles both WA-12-R and WA-155-P permits. The combined development consists of subsea production and injection wells tied back to a floating production storage and offtake facility with an oil processing capacity of 96 thousand barrels per day. First production is expected during the second half of FY2010.
We own a 71.43 per cent operated interest in the WA-12-R permit, with Apache Energy Ltd owning the remaining 28.57 per cent. We own a 40 per cent operated interest in the WA-155-P permit, with Apache Energy Ltd owning 31.5 per cent and Inpex owning 28.5 per cent.
Bass Strait Kipper gas field development
Initial development of the Kipper gas field in the Gippsland Basin located offshore Victoria was approved by the Board in December 2007. The first phase of the project includes two new subsea wells, three new pipelines and platform modifications to supply 10 thousand barrels of condensate per day and 80 million cubic feet of gas per day. Gas and liquids will be processed via the existing Gippsland Basin joint venture facilities. Our share of development costs, based on the operators estimate, is approximately US$500 million. First production is expected in 2011.
We own a 32.5 per cent interest in the Kipper Unit Joint Venture, with Esso Australia and Santos owning the remaining 67.5 per cent. We own a 50 per cent interest in the Gippsland Basin joint venture.
Bass Strait Turrum field development
Further expansion of the Gippsland Basin facilities is under way with the Board approving the full field development of the Turrum oil and gas field in July 2008. Our 50 per cent share of the investment, based on the operators estimate, is approximately US$625 million and consists of a new platform, Marlin B, linked by a bridge to the existing Marlin A platform. The Turrum field, which has a capacity of 11 thousand barrels of oil per day and 200 million cubic feet of gas per day, is located 42 kilometres from shore in approximately 60 metres of water. First production is expected in 2011.
Trinidad & Tobago
Greater Angostura Phase 2
In September 2008, we announced the signing of a gas sales contract with the National Gas Company of Trinidad and Tobago Limited (NGC) for the purchase of gas from the second phase of the Greater Angostura field. In August 2008, we sanctioned an investment of approximately US$400 million (US$180 million our share) to construct and install a new gas export platform alongside the Companys existing facilities within the Greater Angostura Field. Fabrication of the 280 million cubic feet per day facility started in February 2009 and is expected to be online during 2011.
The development also includes modifications to the existing Greater Angostura facilities and the installation of a new flowline. NGC will take delivery of the gas at the new gas export platform and will transport it in their proposed 36 inch diameter Northeastern Offshore Pipeline to Trinidad and in their 12 inch diameter Tobago pipeline.
The Greater Angostura field includes oil and gas discoveries at Aripo, Kairi and Canteen. We hold a 45 per cent interest in the joint venture. Other partners are Total (30 per cent interest) and Chaoyang Petroleum (BVI) Limited (25 per cent interest), a consortium between CNOOC and Sinopec.
Exploration and appraisal
We are focused on finding significant discoveries through wildcat drilling. We have exploration interests throughout the world, particularly the Gulf of Mexico, Western Australia, Latin America and Malaysia. During the year, our gross expenditure on exploration was US$548 million. Our major exploration interests are as follows:
In March 2007, we were awarded two offshore blocks in Malaysia. We are the operator of the blocks under two separate production sharing contracts. The minimum exploration program includes the acquisition and processing of seismic data for approximately 2,300 square kilometres across the two blocks, and the drilling of four exploration wells within the first seven years of the contracts. The initial seismic acquisition program commenced in June 2008 and was completed in September 2008. The results of the seismic acquisition program are currently under evaluation.
AmericasGulf of Mexico
ShenziGreen Canyon 609 & 610
We currently own a 44 per cent interest in the Shenzi prospect, located in the Green Canyon area. Partners in the well are Hess (28 per cent) and Repsol (28 per cent).
The Shenzi 8 appraisal well was drilled in September 2008. The well result was encouraging as hydrocarbons were encountered and the review of various development options is currently under way.
Mad Dog South
We currently own a 23.9 per cent interest in the Mad Dog South prospect, located in Green Canyon Block 826. Partners in the well are BP (60.5 per cent) and Unocal (15.6 per cent). Mad Dog appraisal well-1 was drilled in May 2009 and completed in June 2009 and sidetrack drilling was completed in July 2009. The well encountered hydrocarbons in the objective Miocene hydrocarbon bearing sands. The subsequent sidetrack reached a total measured depth of 8,273 metres and discovered a significant oil column.
In April 2006, we entered into two exploration and production contracts for the Fuerte Norte and Fuerte Sur blocks, located offshore Colombia. We hold a 75 per cent operated interest in each block with Ecopetrol holding the remaining 25 per cent. The joint venture has completed acquisition and processing of 3D seismic over the area as part of the second phase of the exploration and production contracts for both blocks.
In September 2008, we entered into a Technical Evaluation Assignment (TEA) for the evaluation of hydrocarbons in Block 5 in the Llanos basin, onshore Colombia. We are the operator of the project and hold a
71.4 per cent working interest in the joint venture, with SK Energy Co holding the remaining 28.6 per cent interest. The minimum work commitment under the TEA requires acquisition of 1,000 kilometres of 2D seismic plus the drilling of five stratigraphic wells.
In December 2007, we farmed into northern and southern area licences offshore in the Falkland Islands. We acquired a 51 per cent interest from our joint venture partner Falkland Oil and Gas Limited (FOGL) and assumed operatorship in January 2008. The minimum exploration work program includes the drilling of two wells in the first phase by the end of 2010.
Site surveys on both blocks were completed in 2009 and results of the evaluation area are currently being processed.
In December 2008, we were awarded seven offshore blocks in India. We are the operator of all seven blocks, each with its own production sharing contract. The minimum exploration program includes the acquisition and processing of 2D seismic data for approximately 10,400 square kilometres across the seven blocks. We currently own a 26 per cent interest in all seven blocks, with our partner GVK holding the remaining 74 per cent.
2.2.3 Aluminium Customer Sector Group
Our Aluminium business is a portfolio of assets at three stages of the aluminium value chain: we mine bauxite, we refine bauxite into alumina, and we smelt alumina into aluminium metal. We are the worlds sixth-largest producer of aluminium, with total production in FY2009 of approximately 1.2 million tonnes of aluminium. We also produced approximately 15 million tonnes of bauxite and 4.4 million tonnes of alumina.
During FY2009, approximately 52 per cent of our alumina production was used in our aluminium smelters and we sold the balance to other smelters. Our alumina sales are a mixture of long-term contract sales at LME-linked prices and spot sales at negotiated prices. Prices for our aluminium sales are generally linked to prevailing LME prices.
As with our other businesses, our strategy with bauxite and alumina is to own large, low-cost assets that provide good returns through the investment cycle and provide us with options for brownfield development. With aluminium smelters, where the availability and cost of power are critical, our investment decisions have been driven in part by the availability of stranded power generation capacity. For example, both Hillside and Mozal were originally built when there was excess electricity generating capacity in southern Africa.
We have interests in two sets of integrated bauxite mining/alumina refining assets:
The Boddington bauxite mine in Western Australia supplies bauxite ore via a 51 kilometre long conveyor to the Worsley alumina refinery. Worsley is one of the largest and lowest-cost refineries in the world, and is currently undergoing a major expansion (see Development projects below). Our share of Worsleys FY2009 production was 2.924 million tonnes of alumina. Worsleys export customers include our own Hillside, Bayside and Mozal smelters in southern Africa. Boddington has a reserve life of 24.9 years at current production rates. We own 86 per cent of the mine and the refinery.
During FY2009, we owned a 45 per cent interest in the Suriname bauxite and alumina joint venture that comprised bauxite mines in the Kaaimangrasie, Klaverblad, Caramacca and Coermotibo areas of Suriname and the nearby Paranam alumina refinery. Our share of Paranams FY2009 production was 935,000 tonnes of alumina. In October 2008, we decided to exit the Suriname operations by December 2010. On 31 July 2009, we executed transaction agreements to pass all of our interests in the Suriname bauxite and alumina joint venture to Suralco effective on that date.
We also own 14.8 per cent of Mineração Rio do Norte (MRN) which owns and operates a large bauxite mine in Brazil.
We have interests in the Alumar integrated alumina refinery/aluminium smelter and three stand-alone aluminium smelters:
We own 36 per cent of the Alumar refinery and 40 per cent of the smelter. Alcoa operates both facilities. The operations, and their integrated port facility, are located at São Luís in the Maranhão province of Brazil. Alumar sources bauxite from MRN. During FY2009, approximately 60 per cent of Alumars alumina production was used to feed the smelter, while the remainder was exported. Our share of Alumars FY2009 saleable production was 537,000 tonnes of alumina and 177,000 tonnes of aluminium. The Alumar refinery is currently undergoing a significant expansion (see Development projects below).
Our Hillside and Bayside smelters are located at Richards Bay, South Africa. Hillsides capacity of approximately 704,000 tonnes per annum makes it the largest aluminium smelter in the southern hemisphere, and it is one of the most efficient. Following the closure of potlines B and C, Bayside has smelting capacity of approximately 96,000 tonnes per annum, but it also uses its own aluminium and liquid aluminium from Hillside to produce a range of products such as rod, slab and extrusion. Bayside will cease to produce rod and extrusion from 30 September 2009. Both operations import alumina from our Worsley refinery and source power from Eskom, the South African state utility, under long-term contracts with prices linked to the LME price of aluminium except for Hillside Potline 3, the price for which is linked to the South African and US producer price indices.
In January 2008, Eskom determined that it had insufficient power to meet the national demand in South Africa, and mandated an emergency 10 per cent reduction in power consumption by many large industrial users, including BHP Billiton. Although our contracts with Eskom specify that power supply to our aluminium smelters can only be interrupted approximately one per cent of the time per calendar year, we have respected the emergency situation faced by the country and reduced our demand by the requested 10 per cent. To achieve this in the most economically efficient way, we have closed the B and C potlines at Bayside, reducing production there by approximately 92,000 tonnes per annum. Across all three southern Africa smelters (including Mozal), production losses were just over 108,000 tonnes per annum. The production cuts occurred primarily at Bayside, a 100 per cent BHP Billiton owned facility. A production sharing adjustment has been established between the Mozal partners (47.1 per cent BHP Billiton) to compensate us for taking the majority of the power reduction at a 100 per cent owned facility.
We own 47.1 per cent of and operate the Mozal aluminium smelter in Mozambique, which has a total capacity of approximately 563,000 tonnes per annum. Mozal sources power generated by Eskom via Motraco, a transmission joint venture between Eskom and the national electricity utilities of Mozambique and Swaziland. Tariffs are fixed through to 2012 and will be linked to the LME aluminium price thereafter. Our share of Mozals FY2009 production was 255,000 tonnes.
Information on the Aluminium CSGs bauxite mining operations
The following table contains additional details of our mining operations. This table should be read in conjunction with the production (see section 2.3.2) and reserve tables (see section 2.14.2).
Information on the Aluminium CSGs aluminium smelters and alumina refineries
Alumar refinery expansion
A project to expand the production capacity of the Alumar refinery by 2 million tonnes per annum to 3.5 million tonnes per annum (100 per cent capacity) is nearing completion, with first production from the expansion announced in July 2009. Full mechanical completion is expected in October 2009, and after a period of ramping-up production, full nameplate capacity is expected to be achieved in second half of CY2009. Final expenditure is estimated at US$900 million (our share).
Worsley Efficiency and Growth Project
In May 2008, we announced approval for an expansion project to lift capacity of the Worsley refinery from 3.5 million tonnes per annum of alumina to 4.6 million tonnes per annum (100 per cent capacity) of alumina through expanded mining operations at Boddington, additional refinery capacity and upgraded port facilities. The project is budgeted to cost US$1.9 billion (our share) and be completed in the first half of CY2011.
We have a one-third interest in a joint venture that is finalising a feasibility study into the construction of a 10 million tonnes per annum bauxite mine, an alumina refinery with processing capacity exceeding 3.3 million tonnes per annum and associated infrastructure approximately 110 kilometres from the port of Kamsar in Guinea.
2.2.4 Base Metals Customer Sector Group
Our Base Metals CSG is one of the worlds top producers of copper, silver, lead and uranium, and a leading producer of zinc. Our portfolio of large, low-cost mining operations includes the Escondida mine in Chile, which is the worlds largest single producer of copper, and Olympic Dam in South Australia, which is already a major producer of copper and uranium and has the potential to be significantly expanded.
In recent years, we have commissioned the Spence copper mine and the Escondida Sulphide Leach projects. Our total copper production in FY2009 was 1.2 million tonnes, a 27 per cent increase over our production five years ago.
In addition to conventional mine development, we continue to pursue advanced treatment technologies, such as the leaching of low-grade chalcopyrite ores, which we believe has the potential to recover copper from ores which were previously uneconomic to treat.
We market five primary products:
We sell most of our copper, lead and zinc concentrates to smelters under long-term volume contracts with prices based on the LME price for the contained metal three or four months after shipment, less treatment charges and refining charges (collectively referred to as TCRCs) that we negotiate with the smelters on an annual or bi-annual basis. Some of the ores we mine contain quantities of silver and gold, which remain in the base metal concentrates we sell. We receive payment credits for the silver and gold recovered by our customers in the smelting and refining process.
We sell most of our copper cathode production to rod and brass mills and casting plants around the world under annual contracts with premiums to LME prices. We sell uranium oxide to electricity generating utilities, principally in western Europe, north America and north Asia. Uranium is typically sold under long-term contracts. A significant portion of production is sold into fixed price contracts although increasingly sales are based on flexible pricing terms.
We have seven production assets:
Our 57.5 per cent owned and operated Escondida mine is the largest and one of the lowest-cost copper producers in the world. In FY2009, our share of Escondida production was 417,638, tonnes of copper in concentrate and 172,100 tonnes of copper cathode. Current reserves will support mining for a further 21 years at current production rates. Availability of key inputs like power and water supply at competitive prices is an important focus at Escondida. To ensure security of supply and competitive power costs in the long term we are supporting the construction of an LNG facility to supply gas to the northern grid system, which is scheduled for completion in 2010, and have signed off-take agreements underwriting the construction of a 460 megawatt coal-fired power station, which is scheduled for completion in 2011. To address limitations on the availability of water, we carefully manage our use and re-use of available water, and explore for alternative sources. During FY2009, Escondida experienced an electrical motor failure at the SAG mill in the Laguna Seca concentrator plant. This has impacted the throughput at the plant given the increased maintenance requirements. A permanent repair was completed in the first quarter of FY2010.
While it is already a significant producer of copper cathode and uranium oxide, and a refiner of smaller amounts of gold and silver bullion, we are continuing to explore a series of staged development options that would make our wholly-owned Olympic Dam operation one of the worlds largest producers of copper, the
largest producer of uranium and a significant producer of gold (see Development projects below). In FY2009, Olympic Dam produced 194,057 tonnes of copper cathode, 4,007 tonnes of uranium oxide, 108,039 ounces of gold and 937,694 ounces of silver.
We own 33.75 per cent of Antamina, a large, low-cost, long-life copper/zinc mine in Peru. Opened in 2001, its reserves will support mining at current rates for a further 21 years. Our share of Antaminas FY2009 production was 109,000 tonnes of copper in concentrate, and 108,366 tonnes of zinc in concentrate. In addition to its primary copper and zinc concentrate products, Antamina also produces smaller amounts of molybdenum and lead/bismuth concentrate.
We completed our wholly-owned greenfield Spence copper mine development in Chile and began ramping up cathode production in December 2006. During FY2009, we produced 172,685 tonnes of copper cathode as we continue to ramp-up to the nominal capacity of 200,000 tonnes per annum.
Our wholly-owned Cerro Colorado mine in Chile remains a significant producer of copper cathode, although production levels have declined in recent years as grades have declined. Production in FY2009 was 102,100 tonnes of copper cathode. Our current mine plan sees production continuing until FY2019, although we are currently evaluating the extent of hypogene mineralisation that may support further extension options.
Our wholly-owned Cannington mine in northwest Queensland has grown to become the worlds largest and, we believe, one of the lowest-cost producers of silver and lead. During FY2006 and FY2007, we undertook an extensive program of decline and stope access rehabilitation to improve safety conditions, which has positioned the mine to maintain production, offsetting natural grade decline over its remaining life, currently estimated at eight years. In FY2009, Cannington produced concentrates containing 226,794 tonnes of lead, 54,849 tonnes of zinc and approximately 33 million ounces of silver.
As a result of the global economic slowdown and the resulting decline in copper prices, we made the decision to stop sulphide mining and milling operations at our Pinto Valley Mine located in Arizona, US, placing the operations in care and maintenance. Despite this decision, we continue to produce copper cathode at the Pinto Valley site and the neighbouring Miami Unit from our residual solvent extraction electrowinning (SXEW) operations. Current reserves would support mining operations for approximately four years.
Information on the Base Metals CSGs mining operations
The following table contains additional details of our mining operations. This table should be read in conjunction with the production (see section 2.3.2) and reserve tables (see section 2.14.2).
Pre-feasibility study work on the proposed expansion of Olympic Dam is complete. The study has addressed production capacities, mining methods, processing (including smelting) options and supporting infrastructure requirements. Based on this work, a project configuration has been described in a draft Environmental Impact Statement (EIS) provided to the Federal, South Australian and Northern Territory governments which was publicly released on 1 May 2009. The proposed expansion would be a progressive development requiring construction activity over a period of 11 years to increase production to up to 750,000 tonnes per annum of copper, 19,000 tonnes per annum of uranium oxide and 800,000 ounces of gold. Government decisions on the draft EIS are expected by mid 2010. After that, the expansion project will depend on successfully completing all required feasibility studies and on BHP Billiton Board approval of the final investment case.
Exploration of the Escondida lease and early drilling results suggest that there is extensive additional mineralisation in close proximity to existing infrastructure and processing facilities, including a new prospect known as Pampa Escondida. Further study will be required before we establish whether it can be economically extracted. Escondida is planning to invest an estimated US$198 million (US$114 million our share) in drilling, assaying and metallurgical test work in exploration across the mining lease over the next five years.
Following extensive drilling completed during 2006 2007 and an updated resource model, Antamina increased its reserves estimate. We are currently considering production expansion alternatives.
We hold a 45 per cent interest in the Resolution Copper project in Arizona, which is operated by our partner, Rio Tinto, which owns the other 55 per cent. Resolution Copper is currently undertaking a pre-feasibility study into a substantial underground copper mine and processing facility. During fiscal year 2009, Resolution Copper began sinking the number 10 shaft, which will provide further access to the orebody and also serve as a ventilation shaft during operation.
2.2.5 Diamonds and Specialty Products Customer Sector Group
Our Diamonds and Specialty Products CSG operates our diamonds and titanium minerals businesses and the exploration and development of a potash business.
The cornerstone of our diamonds business is the EKATI diamond mine in the Northwest Territories of Canada, of which we own 80 per cent. EKATI has produced on average over three million carats per year of rough diamonds over the last three years. However, the grade of ore we process fluctuates from year to year, resulting in variations in carats produced. In addition, the proportion of our production consisting of high-value carats (larger and/or higher-quality stones) and low-value carats (smaller and/or lower-quality stones) will fluctuate from year to year. Production at EKATI continues to transition from predominantly open-cut to a mix of open-cut and underground mining. EKATI has development options for future open-cut and underground mines to extend the life of the operation. The mine life based on current reserves and rate of production is nine years.
Annual sales from EKATI (100 per cent terms) represent approximately two per cent of current world rough diamond supply by weight and approximately six per cent by value. We sell most of our rough diamonds to international diamond buyers through our Antwerp sales office. We also sell a smaller amount of our diamond production to two Canadian manufacturers based in the Northwest Territories.
Our principal interest in titanium minerals consists of our 50 per cent effective interest in Richards Bay Minerals (RBM). RBM is one of the largest and lowest-cost producers of titania slag, high-purity pig iron, rutile and zircon from mineral sands. Approximately 90 per cent of the titanium dioxide slag produced by RBM is suitable for the chloride process of titanium dioxide pigment manufacture and is sold internationally under a variety of short, medium and long-term contracts. The other 50 per cent of RBM is owned by Rio Tinto.
In December 2008, RBM announced an agreement had been reached for a 26 per cent Broad-Based Black Economic Empowerment (BBBEE) transaction. The BBBEE Consortium includes investors, local communities and RBM employees. The transaction will become effective on receipt of the remaining regulatory approvals.
We believe that sound industry fundamentals, driven by rising demand for fertilisers, together with the resource attributes and capital-intensive nature of greenfield potash developments, make potash a suitable commodity for our portfolio.
In June 2006, we entered into a joint venture agreement with Anglo Potash Ltd, which gave us a 75 per cent interest in a large land position in Saskatchewan. BHP Billiton is the operator of the joint venture. In July of 2008 we acquired the remaining 25 per cent of our interest in the joint venture when we acquired our partner Anglo Potash Ltd. We now control 100 per cent of the land position.
Our permit positions for potash extend over 7,338 square kilometres of highly prospective exploration ground within Saskatchewan and Manitoba. We are currently studying development alternatives (see Development projects below).
Information on Diamonds and Specialty Products mining operations
The following table contains additional details of our mining operations. This table should be read in conjunction with the production (see section 2.3.2) and reserve tables (see section 2.14.2).
We are currently undertaking a pre-feasibility study for the Jansen project, a potentially substantial greenfield potash mine in the province of Saskatchewan, Canada. The Jansen project envisages the development of an underground mining operation, processing plant and associated infrastructure. Exploration work comprising drilling and 3D seismic program has been completed, we have selected the mine site location and we are finalising the optimised mine design.
The next priority areas that have been identified are Boulder and Young, also in the province of Saskatchewan, Canada. These projects are currently conducting concept studies.
We are working on pre-feasibility and concept studies for developments at EKATI. Because of the nature of the kimberlite pipes in which diamonds are found, individual pipes are relatively short-lived, so we are continually working on options to bring new pipes on-stream.
During the year, we completed a pre-feasibility study on the Corridor Sands titanium minerals project (90 per cent BHP Billiton) in the Gaza province of southern Mozambique. The study found inadequate value to justify further development of the project at this time.
2.2.6 Stainless Steel Materials Customer Sector Group
Our Stainless Steel Materials business is primarily a supplier of nickel to the stainless steel industry. Nickel is an important component of the most commonly used types of stainless steel. In addition, we supply nickel and cobalt to other markets, including the specialty alloy, foundry, chemicals, and refractory material industries. We are the worlds third-largest producer of nickel and we sell our nickel products under a mix of long-term, medium-term and spot contracts, with prices linked to the LME nickel price.
During FY2009, our nickel business comprised three sets of assets:
Nickel West is the name for our wholly-owned Western Australian nickel assets, which consist of an integrated system of mines, concentrators, a smelter and refinery, together with our Ravensthorpe nickel operation. We mine nickel-bearing sulphide ore at our Mt Keith, Leinster and Cliffs operations north of Kalgoorlie, Western Australia. We operate concentrator plants at Mt Keith and at Leinster, which also concentrates ore from Cliffs. Leinster and Mt Keith have reserve lives of six and 15 years respectively at current rates of production, and both have options for further expansion. Cliffs is a high-grade underground mine with an expected reserve life of four years. The extraction of ore at Cliffs commenced in FY2008.
We also operate the Kambalda concentrator south of Kalgoorlie, which processes ore and concentrate purchased from third parties.
We transport concentrate from Leinster, Mt Keith and Kambalda to our Kalgoorlie smelter, which processes it into nickel matte, containing approximately 68 per cent nickel. In FY2009, we exported approximately 31 per cent of our nickel matte production. We processed the remaining nickel matte at our Kwinana nickel refinery, which produces nickel metal in the form of LME grade briquettes and nickel powder, together with a range of saleable by-products. In June 2008, we announced that we brought forward a planned furnace rebuild at the Kalgoorlie smelter and that, as a consequence, the smelter was shut down and the Kwinana nickel refinery had a concurrent period of extended maintenance. The smelter furnace rebuild was completed after approximately three months. Production in FY2009 was 88,700 tonnes of contained nickel, approximately 9,400 tonnes lower than in FY2008 principally due to the aforementioned smelter furnace rebuild and concurrent maintenance at the Kwinana nickel refinery.
Our Ravensthorpe nickel operation was commissioned during FY2008. Ravensthorpe comprises a large open-cut laterite nickel mine and an enhanced pressure acid leach concentrator plant. The plants production, a mixed hydroxide precipitate (MHP) containing approximately 40 per cent nickel, was shipped to the expanded Yabulu refinery (see below) for refining into nickel metal. In January 2009, we announced the indefinite suspension of the Ravensthorpe operation due primarily to the marked decrease in the LME nickel price and the additional capital that would be required to complete ramp-up to and sustain production at projected operating levels.
The Ravensthorpe nickel operation is the subject of a future options study that is targeting completion during calendar year 2009. We are evaluating future options for this asset, which includes a potential divestment.
This wholly-owned nickel refinery in Queensland, Australia, began operations in 1974 to service the nearby nickel laterite Greenvale mine, which closed in 1993. Since then, it has continued to process laterite ores purchased from third party mines in New Caledonia, Indonesia and the Philippines. In FY2008, we completed a significant expansion of the refinery to give it the capacity to process MHP from Ravensthorpe. The expansion more than doubled the nickel production capacity of the plant to an estimated 76,000 tonnes per annum of contained nickel. Since the announcement to indefinitely suspend the Ravensthorpe operation in January 2009, Yabulu has reverted to processing ore only.
In July 2009, we announced the sale of the Yabulu nickel refinery, which was completed on 31 July 2009.
Cerro Matoso, our 99.94 per cent owned nickel operation in Colombia, combines a lateritic nickel ore deposit with a low-cost ferronickel smelter. Cerro Matoso is the worlds second-largest producer of ferronickel and one of the lowest-cost producers of ferronickel. The smelter produces high-purity, low-carbon ferronickel granules. Production in FY2009 was 50,500 tonnes of contained nickel, approximately 8,700 tonnes higher than in FY2008 principally due to FY2008 production being affected by an industrial stoppage. Cerro Matoso has an estimated reserve life of 40 years, based on current production levels.
Information on Stainless Steel Materials mining operations
Information on Stainless Steel Materials smelters, refineries and processing plants
Cerro Matoso expansion options
Cerro Matoso has undertaken conceptual studies on options for expanding production, including a heap leaching operation. A completed feasibility study and Board approval would be required before any project based on these studies proceeds.
Mt Keith Talc co-processing
We have recently completed a feasibility study into upgrading the existing concentrator facilities at Mt Keith to enable it to process talcose ore to supplement the current ore supply. The general scope of this project is the installation of additional grinding and flotation equipment within the existing circuits at Mt Keith and the addition of a high magnesium oxide concentrate flotation circuit. If approved, this project will allow us to treat talcose ores, which make up approximately 15 per cent of the Mt Keith orebody, and which have previously not been able to be economically processed with the existing processing technology.
2.2.7 Iron Ore Customer Sector Group
Our Iron Ore CSG consists of our Western Australia Iron Ore (WAIO) business and a 50 per cent interest in the Samarco joint venture in Brazil.
Western Australia Iron Ore
WAIOs operations involve a complex integrated system of seven mines and more than 1,000 kilometres of rail and port facilities, all located in the Pilbara region of northern Western Australia.
In response to increasing demand for iron ore, we have been expanding our WAIO operations. Since 2001, we have completed five expansion projects to increase our system production capacity from 69 million tonnes per annum to 129 million tonnes per annum (100 per cent basis). All of these projects have been completed on time and on budget. We now have two projects under construction to further increase system capacity to 205 million tonnes per annum (100 per cent basis). Additional projects now undergoing pre-feasibility or
feasibility studies would, if approved and completed on schedule, increase system capacity to 300 million tonnes per annum by 2015 (100 per cent basis). Our share of FY2009 production was 106.1 million tonnes of ore.
Our Pilbara reserve base is relatively concentrated, allowing us to plan our development around a series of integrated mining hubs joined to the orebodies by conveyors or spur lines. The mining hub approach enables us to maximise the value of installed infrastructure by using the same processing plant and rail infrastructure for a number of orebodies. Blending ore at the hub gives us greater flexibility to respond to changing customer requirements and changing properties in the ore being mined, as well as reducing the risk of port bottlenecks.
In conjunction with our capacity expansion, we have continued to explore and refine our understanding of existing tenements. Our proven ore reserves are high-grade, with average iron content ranging from 57.2 per cent at Yandi to 63.6 per cent at Mt Newman. The reserves lives of our mines at current production levels range from 13 years at Mt Goldsworthy (Area C) to 92 years at Jimblebar.
Most of our sales take place under long-term volume contracts with steel producers in Asia. Prices are generally set through annual negotiations. In the longer term, we are promoting a shift away from annually negotiated prices to a system based on transparent market-indexed prices.
We are a 50-50 joint venture partner with Vale at the Samarco operations in Brazil. During the 2008 fiscal year, Samarco completed an expansion project consisting of a third pellet plant, a mine expansion, a new concentrator, port enhancements and a second slurry pipeline. Our share of production in FY2009 was approximately 8.3 million tonnes of ore. Samarco has a mine life of 39 years at current production rates.
During FY2009, market conditions required Samarco to operate its three pellet plants intermittently in response to decreased global demand for pellet production. Operations are continually monitored to ensure that utilisation of all pellet plants are optimised.
Information on Iron Ore mining operations
Western Australia Iron Ore
Construction of Rapid Growth Project (RGP) 4 is continuing. This project was approved in March 2007 and is designed to deliver an additional 26 million tonnes per annum of capacity, bringing the total installed capacity of our WAIO operations to 155 million tonnes per annum (100 per cent share). The projected cost of RGP 4 is US$1,850 million.
The Board approved project expenditure of US$4.8 billion in November 2008 for RGP 5. The focus of this expansion project is to substantially double track the Newman mainline rail and construct two new shipping berths on the Finucane Island side of the Port Hedland harbour. RGP 5 is expected to increase the installed capacity of our WAIO operations by a further 50 million tonnes per annum to 205 million tonnes per annum (100 per cent share). The additional mine capacity will be predominantly at Yandi (40 million tonnes per annum) with the 10 million tonnes per annum balance coming from the Area C and Newman mines.
Western Australia Iron OreRio Tinto Joint Venture
On 5 June 2009, we signed a non-binding agreement with Rio Tinto to form a 50-50 production joint venture combining the economic interests of both companies current and future iron ore assets in Western Australia. We are progressing the development of definitive agreements with Rio Tinto based on the announced agreed principles and intend to sign these documents as soon as practicable.
The joint venture offers a unique opportunity to capture substantial production and development synergies from the companies overlapping world-class resources. These synergies are anticipated to come from:
The non-binding agreement provides, in addition to other matters, that:
It is intended that BHP Billitons Iron Ore President, Ian Ashby, will be appointed as the initial Chief Executive Officer of the joint venture, while Sam Walsh, currently Rio Tintos Chief Executive Iron Ore will be appointed as initial Chairman of the non-executive owners council.
Formation of the joint venture is expected to be completed by mid-2010. Pre-conditions for formation of the joint venture include receipt of regulatory and relevant governmental clearances and approval from the shareholders of both Rio Tinto and BHP Billiton.
We are currently carrying out exploration activities and concept studies in Guinea at our Nimba deposit to determine the economic viability, sustainability impacts and management implications of a potential mine development in this area. In addition, we are carrying out exploration activities on various exploration leases we hold in Liberia.
2.2.8 Manganese Customer Sector Group
Our Manganese operations produce a combination of ores, alloys and metal from sites in South Africa and Australia. We are the worlds largest producer of seaborne manganese ore and among the top three global producers of manganese alloy.
Manganese alloy is a key input into the steelmaking process. Our high-grade ore is particularly valuable to alloy producers because of the value in use differential over low-grade ore, which is the degree to which high-grade ore is proportionately more efficient in the alloying process than low-grade ore.
Although our corporate strategy is to focus on upstream resources businesses, our low-cost alloy smelters have been significant contributors to our profit in recent years. In addition, they add value to the overall manganese business because they enable us to access markets with an optimal mix of ore and alloy, optimise production to best suit market conditions and give us insights into the performance of our ores in smelters.
Approximately 80 per cent of our ore production is sold directly to external customers and the remainder is used as feedstock in our alloy smelters.
We own and manage all of our manganese mining assets and alloy plants through a 60-40 joint venture with Anglo-American. The joint venture assets are Samancor Manganese, which owns Hotazel Manganese Mines (HMM) and Metalloys, both situated in South Africa and the Groote Eylandt Mining Company (GEMCO) and Tasmanian Electro Metallurgical Company (TEMCO) located in Australia. In July 2009, Samancor sold 26 per cent of HMM in a series of transactions designed to comply with South Africas Black Economic Empowerment requirements.
The joint venture also owns 51 per cent of the Manganese Metal Company, which operates a manganese metal plant in South Africa. Our manganese metal and alloy sales are principally to carbon steelmakers.
HMM owns the Mamatwan open-cut mine and the Wessels underground mine. The ore contained in these mines requires only crushing and screening to create saleable product with no further upgrade steps required. These assets produced 2.1 million tonnes of ore during FY2009 and have opportunities for further expansion. In FY2009, production was reduced in response to lower demand as a result of the global economic slow down. At FY2008 production rates, Mamatwan and Wessels have reserve lives of 22 and 49 years.
As a result of its location near our own port facilities and its simple, open-cut mining operation, GEMCO is one of the lowest-cost manganese ore producers in the world. Simple operations combined with its high-grade of ore and relative proximity to Asian export markets make GEMCO unique among the worlds manganese mines. GEMCO produced over 3.5 million tonnes of ore in FY2008. In FY2009, production was reduced to 2.3 million tonnes in response to lower demand. At a production rate of four million dry tonnes per annum, it has a reserve life of 14 years. The GEMCO expansion project was completed in FY2009 and we are studying other expansion options (see Development projects below).
The Samancor Manganese Metalloys alloy plant is one of the largest manganese alloy producers in the world. Due to its size and access to high-quality feedstock from our Hotazel operations, it is also one of the lowest-cost alloy producers. Metalloys produces high and medium-carbon ferromanganese and silicomanganese. In FY2009, production rates were curtailed due to the global economic slowdown and 301,000 tonnes of alloy were produced.
TEMCO is a medium-sized, captive producer of high-carbon ferromanganese, silicomanganese and sinter using ore shipped from GEMCO, primarily using hydroelectric power. Like Metalloys, production rates were reduced compared with FY2008 and 212,000 tonnes of alloy were produced.
Information on Manganese mining operations
The following table contains additional details of our mining operations. These tables should be read in conjunction with the production (see section 2.3.2) and reserve tables (see section 2.14.2).
Information on Manganese smelters, refineries and processing plants
The expansion of the GEMCOs processing plant by an estimated one million tonnes per annum at a cost of US$93 million (BHP Billiton share) was completed in the FY2009. This project was delivered on time and under budget. We are undertaking a pre-feasibility study into further expansion options. The project commissioning is under way and will continue into the first quarter of FY2010.
Hotazel Manganese Mines
Two expansion projects in South Africa are expected to add one million tonnes per annum of capacity (100 per cent, or about 0.6 million tonnes per annum BHP Billiton share) for an estimated capital expenditure of US$55 million (BHP Billiton share).
2.2.9 Metallurgical Coal Customer Sector Group
Our Metallurgical Coal CSG is the worlds largest supplier of seaborne metallurgical coal. Metallurgical coal, along with iron ore and manganese, is a key input in the production of steel.
We have production assets in two major resource basins: the Bowen Basin in Central Queensland, Australia and the Illawarra region of New South Wales, Australia. We are currently reviewing options in relation to a significant basin at Maruwai on the Indonesian island of Borneo in the East Kalimantan province, where we ceased exploration and development works in June 2009.
In comparison with other coal producing regions, the Bowen Basin is extremely well positioned to supply the seaborne market because of:
We have access to key infrastructure, including a modern, integrated electric rail network and our own coal loading terminal at Hay Point, Mackay. This infrastructure enables us to maximise throughput and blending products from multiple mines to optimise the value of our production and satisfy customer requirements.
Our Bowen Basin mines are owned through a series of joint ventures. We share 50-50 ownership with Mitsubishi Development Pty Ltd of BHP Billiton Mitsubishi Alliance (BMA), which operates the Goonyella Riverside, Peak Downs, Saraji, Norwich Park, Blackwater and Gregory Crinum mines, together with the Hay Point terminal. We own 80 per cent of the South Walker Creek and Poitrel mines, with Mitsui and Co. owning the other 20 per cent. All operations are managed by BMA. The reserve lives of the Bowen Basin mines at current production rates range from seven years to 66 years.
We export Bowen Basin metallurgical coal under long-term or annual volume contracts with prices negotiated yearly. Our customers are steel producers around the world, particularly in Asia and India.
Total attributable production in FY2009 was approximately 30.1 million tonnes, compared with 27.9 million tonnes in FY2008. Production in FY2008 was affected by two episodes of heavy rain and flooding.
We own and operate three underground coal mines in the Illawarra region of New South Wales, which supply metallurgical coal to the nearby BlueScope Port Kembla steelworks, and domestic and export markets
under contracts with annually negotiated prices. Total production in FY2009 was approximately 6.3 million tonnes and the reserve lives of the Illawarra mines at current production rates range from five years to 14 years.
Production figures for both the Bowen Basin and Illawarra include some energy coal (less than 7 per cent and 11 per cent, respectively).
Information on Metallurgical Coal mining operations
The following table contains additional details of our mining operations. The tables should be read in conjunction with the production (see section 2.3.2) and reserves tables (see section 2.14.2).
Maruwai (Lampunut, Indonesia)
In June 2009, we announced our intention not to proceed with the Haju trial mine as it was determined that the project was not a sufficient fit with the Companys long-term investment strategy. Work on the Lampunut feasibility study has also ceased while other activities are under review. Further evaluation of our remaining interests is under way to determine the best future commercial options.
Bowen Basin Expansions
BMA is currently investigating a number of brownfield and greenfield expansion options in the Bowen Basin, including:
Daunia, located to the east of the Poitrel mine, has been designed with capacity to produce four million tonnes per annum, and the production capacity of Caval Ridge, located to the north of the Peak Downs mine, would be up to 5.5 million tonnes per annum (100 per cent, or 2.75 million tonnes per annum BHP Billiton share) in addition to potential expansion of Peak Downs mine of 2.5 million tonnes per annum (100 per cent, or 1.25 million tonnes per annum BHP Billiton share). Both developments would include coal handling preparation plants. We are assessing the optimal time to advance these projects and we are continuing to progress the statutory and owner approvals for our growth projects.
In September 2008, BMA acquired the New Saraji exploration project from New Hope for approximately US$1 billion (BHP Billiton share). This project is located to the east of the Saraji mine and is now known as Saraji East.
2.2.10 Energy Coal Customer Sector Group
Our Energy Coal CSG is one of the worlds largest producers and marketers of export energy coal (also known as thermal or steaming coal) and is also a significant domestic supplier to the electricity generation industry in Australia, South Africa and the United States. Our global portfolio of energy coal assets, our insights into the broader energy market through our sales of other fuels such as gas, uranium and oil, and our control of options for bulk freight provide our business with key advantages as a supplier. Like our other businesses, our Energy Coal CSG owns large, long-life assets with substantial options for expansion.
We generally make our domestic sales under long-term fixed-price contracts with power stations that are located in close proximity to the mine. We make export sales to power generators and some industrial users in Asia, Europe and the United States, usually under contracts for delivery of a fixed volume of coal. Pricing is either index-linked, or fixed, in which case we use financial instruments to swap our fixed-price exposure for exposure to market indexed prices.
We recognise that the need to control carbon dioxide emissions has substantial implications for the use of thermal coal as an energy source. Our Company has committed to invest US$300 million over the five years from June 2007 to support the research, development and demonstration of low-emissions technologies, including clean coal and carbon sequestration technologies. We have also developed the capacity to offer our export customers emissions credits in conjunction with their coal purchases.
We operate three sets of assets: a group of mines and associated infrastructure collectively known as BHP Billiton Energy Coal South Africa (BECSA); our New Mexico Coal operations in the United States; and our Hunter Valley Energy Coal operations in New South Wales, Australia. We also own a one-third share of the Cerrejón Coal Company, which operates a coal mine in Colombia.
BHP Billiton Energy Coal South Africa
BECSA operates three coal mines in the Witbank region of Mpumalanga province of South Africa, which produced a total of approximately 31.7 million tonnes in FY2009. We have two major mine expansion projects under way in South Africa (see Development projects below). In FY2009, BECSA sold approximately 73 per cent of its production to Eskom, the government-owned electricity utility in South Africa, and exported the rest via the Richards Bay Coal Terminal, in which we own a 24 per cent share. The reserve lives of the BECSA mines at current production rates range from 12 to 22 years.
New Mexico Coal
We own and operate the Navajo mine, located on Navajo land in New Mexico, and the nearby San Juan mine. Each of these mines transports its production directly to a nearby power station. The reserve lives of Navajo and San Juan at current production rates are 22 and 11 years, respectively. We are considering expansion options at Navajo (see Development projects below).
Hunter Valley Energy Coal
Our Hunter Valley operating asset is the Mt Arthur open-cut coal mine, which produced approximately 11.8 million tonnes in FY2009 and has a reserve life at current production rates of 51 years. We also have projects in execution and pre-feasibility that if completed, will form part of the Hunter Valley Energy Coal portfolio (see Development projects below). In FY2009, we delivered approximately one-quarter of Mt Arthurs production to a local power station and exported the rest via the port of Newcastle.
Cerrejón Coal Company
Cerrejón Coal Company owns and operates the largest open-cut export coal mine in the world in La Guajira province of Colombia, together with integrated rail and port facilities through which the majority of production is exported. In FY2008, Cerrejón completed an expansion that increased capacity to 32 million tonnes per annum (100 per cent terms). At Cerrejóns current rate of production, Cerrejón has a reserve life of 23 years.
Information on Energy Coal mining operations
The following table contains additional details of our mining operations. The tables should be read in conjunction with the production (see section 2.3.2) and reserves tables (see section 2.14.2).
We are expanding the production capacity of BECSAs Klipspruit mine by approximately 1.8 million tonnes per annum (export coal) and 2.1 million tonnes per annum (domestic coal). The project also involves the construction of a 16 million tonnes per annum coal processing plant on Klipspruit land as a 50-50 joint venture with Anglo Coal, which is constructing the Phola Coal Plant. First coal was produced in July 2009. Our share of the cost of the project is approximately US$450 million. We expect the expanded mine to have a reserve life of approximately 12 years.
Douglas-Middelburg Optimisation Project
This project involves works to optimise the development of existing reserves across the Douglas and Middelburg collieries, the development of additional mining areas and the construction of a new 14 million tonnes per annum coal processing plant, which will replace the less efficient existing plant at Douglas. The work will enable us to maintain energy coal exports from the combined Douglas and Middelburg colliery at around current levels (approximately 10 million tonnes per annum) while also fulfilling our domestic contractual commitments. The expected capital investment is US$975 million and the new plant is scheduled to receive its first coal in mid CY2010.
We are undertaking a feasibility study on a project called the Navajo Mine Extension project, which would expand the Navajo mine to supply a proposed new power station to be built immediately adjacent to the mine with up to 5.7 million tonnes per annum. The project schedule is tied to the approval process for the power station. The final air permit for the proposed power plant was issued by the United States Environmental Protection Agency on 31 July 2008. In April 2009, the US EPA filed a request with the Environmental Appeals Board to have the air permit remanded for further review. There has been no decision on this request to date. The timing of the Navajo Mine Extension Project will be dependent on the satisfactory resolution of the air permitting process.
Mt Arthur open-cut expansion
On 24 July 2009, we announced the Mt Arthur Coal (MAC) mine expansion, which is designed to increase production of saleable thermal coal from 11.5 million tonnes per annum to approximately 15 million tonnes per annum. Known as the MAC 20 Project, it is expected to commence operation in the first half of CY2011 at an estimated capital investment of US$260 million.
Newcastle Third Export Coal Terminal
We are a 35.5 per cent shareholder in a joint venture company that is constructing a new 30 million tonnes per annum export coal loading facility to supplement existing public facilities in the port of Newcastle. Our share of the construction cost is estimated at US$390 million. The first ship loading of coal is scheduled for CY2010.
The table below details our Petroleum CSGs historical net crude oil and condensate, natural gas and natural gas liquids production, primarily by asset, for each of the three years ended 30 June 2009, 2008 and 2007. We have shown volumes of marketable production after deduction of applicable royalties, fuel and flare. We have included in the table average production costs per unit of production and average sales prices for oil and condensate and natural gas for each of those periods.
The table below details our mineral and derivative product production for all CSGs except Petroleum for the three years ended 30 June 2009, 2008 and 2007. Production shows our share unless otherwise stated.