R 070209Z APR 09
FM AMCONSUL MELBOURNE
TO SECSTATE WASHDC 4916
INFO AMEMBASSY CANBERRA 
AMEMBASSY LONDON 
AMEMBASSY NEW DELHI 
AMCONSUL PERTH 
AMCONSUL SYDNEY 
DEPT OF TREASURY WASHDC
DEPT OF COMMERCE WASHDC

C O N F I D E N T I A L MELBOURNE 000046 
 
 
SIPDIS 
 
STATE FOR EEB MONOSSON, DOE FOR SKEER 
 
E.O. 12958: DECL: 04/07/2019 
TAGS: EIND ECON ENRG ETRD AS
SUBJECT: EXPANSION OF WORLD,S LARGEST URANIUM MINE TO 
PROCEED DESPITE COMMODITIES DOWNTURN 
 
REF: A. A) CANBERRA 330 
     ¶B. B) CANBERRA 327 
     ¶C. C) MELBOURNE 8 
     ¶D. D) MELBOURNE 2 
     ¶E. E) 08 MELBOURNE 122 
 
 
Classified By: Michael E. Thurston, Consul General, Consulate 
General Melbourne 
 
Summary 
------- 
 
¶1. (C) Despite turmoil in the global commodities market, BHP 
Billiton is proceeding with plans, albeit at a reduced pace, 
to expand its Olympic Dam facilities into what will become 
the largest uranium mine in the world.  Lower copper prices 
have forced BHP to shelve several capital investment programs 
and to reduce staffing, but plans to release the mine's 
environmental impact statement on May 1 are still on track. 
Olympic Dam's leadership is already drawing up plans to 
provide for the massive amounts of electricity and water that 
the expanded mine will require.  While its Australian 
competitors Rio Tinto, Oz Minerals and Fortescue are 
struggling with their balance sheets, BHP appears to be 
looking ahead to increased demand for nuclear power and other 
resources.  End Summary. 
 
Mine Expansion Moves Ahead 
-------------------------- 
 
¶2. (C) Mining giant BHP Billiton is moving ahead with plans 
to expand its Olympic Dam facility into what will become the 
world's largest uranium mine.  During an April 3 visit to the 
mine, BHP's Manager for Integrated Planning, Barry Hewlett 
told Consul General that the halving of copper prices -- 
copper constitutes 76 percent of the mine's current business 
-- will delay expansion of the facilities by at least one 
year, but BHP still intends to release its environmental 
impact statement on May 1 for public review.  (Note: Uranium 
was initially seen as a problematic byproduct of copper 
production at Olympic Dam.  End note.)  The downturn in 
commodities prices has forced BHP to shelve several capital 
investment projects and to cut 200 positions (120 of whom 
were contractors) at the mine.  Caterpillar is a major 
supplier for Olympic Dam's underground earth moving 
operations and stands to benefit greatly from the mine's 
expansion. 
 
¶3. (C) The Olympic Dam mine, which is located 311 miles north 
of Adelaide, sits on the world's largest known uranium 
deposit.  According to the mine's expansion plan, uranium 
production would increase from its current level of 4,000 
tons (representing 10 percent of current global supply) to 
19,000 tons.  Expansion of the mine's uranium business will 
be carried out gradually in order to avoid "flooding the 
market."  Hewlett noted that there is a natural ceiling on 
uranium demand because customers prefer to diversify their 
sources in order to minimize political risk.  According to 
Hewlett, India represents a potentially massive market for 
the mine, but the Rudd Government will not sell uranium to 
India until it signs on to the non-proliferation treaty. 
(Note: Under the expansion plans, copper production would 
rise from 180,000 to 730,000 tons and gold would increase 
from 100,000 ounces to 800,000 ounces.  End note.) 
 
Chinese Investment 
------------------ 
 
¶4. (C) Paul Heithersay, Executive Director for South 
Australia's Minerals and Energy Resources department 
accompanied Consul General during the visit and said that the 
federal government's rejection of PRC-owned Minmetals' bid 
for Oz minerals (ref. B) is having a "ripple effect" in the 
South Australian mining industry.  According to Heithersay, 
the decision to block Minmetals' bid on national security 
grounds due to its Prominent Hill mine's proximity to the 
Woomera testing site has left many South Australian firms 
"worried" about securing much needed financing from Chinese 
investors.  Barry Hewlett noted that BHP had put in a "low 
ball" bid for Oz Minerals' Prominent Hill site and that it is 
still too early to tell whether that bid will be successful. 
 
Next Steps 
---------- 
 
¶5. (C) BHP plans to release its environmental impact 
statement (EIS) to the public on May 1 and expects approvals 
from the federal and state governments sometime in 2010. 
Paul Heithersay noted that the South Australian government 
has already seen the preliminary EIS and is "very supportive" 
of the expansion.  Responding to Consul General's question on 
whether the EIS would generate similar public opposition as 
did the controversial Gunns paper mill in Tasmania and the 
desalination plant in Victoria (refs. B and D), Hewlett said 
the company is not anticipating much reaction.  Heithersay 
echoed this sentiment and said that Australian worries over 
greenhouse gas emissions may actually increase support for 
nuclear power. 
 
Impact on the Environment 
------------------------- 
 
¶6. (C) The Olympic Dam mine presently consumes 10 percent of 
South Australia's electricity, but when expansion is 
complete, it could absorb as much as 60 percent of existing 
capacity in SA.  According to Hewlett, expanding the 
facilities will lead BHP to put out a bid for a dedicated 
power station near the mine from which the company will buy 
back power on a contract basis.  BHP sources have previously 
said that purchasing power from renewable energy projects 
like geothermal may also be a possibility. 
 
¶7. (C) The company is also considering building a 
desalination plant on the Spencer Gulf and will offer 
increased water supplies as a "fringe benefit" to local 
residents who would be impacted by the plant.  The mine 
presently draws its water from the Great Artesian Basin and 
will continue to do so even with a dedicated desalination 
plant.  Natural gas will continue to be piped in from nearby 
facilities.  During a previous visit to Adelaide, Canberra 
econoff was told that the Olympic Dam expansion would result 
in a "carbon neutral" facility, with the company likely to 
purchase international CO2 reduction credits to offset the 
much larger emission footprint of the open-pit expansion. 
 
Comment 
------- 
 
¶8. (C) We were struck by Olympic Dam management's calm 
appraisal of the global downturn in commodities prices. 
While BHP acknowledged that expansion plans will likely be 
delayed, we believe it sees increased uranium production as a 
stabilizing force for its other more volatile resource 
products.  BHP has gone so far as to create a special 
"Uranium Australia" division based in Adelaide which is 
headed by Olympic Dam's mining boss.  A lengthy approval 
process still lies ahead for mine's expansion which will give 
BHP time to assess market conditions.  While it is too early 
to evaluate the potential market impact of an expanded 
Olympic Dam mine, BHP is looking to the future while many of 
its Australian competitors are worried about troubled balance 
sheets. 
 
 
THURSTON