Olympic Dam accident could cost US$550mn in lost copper, uranium, gold and silver output

BHP's assessment as to how long the Olympic Dam main hoisting shaft will be out of commission gives some idea of the likely cost of lost output and the impact on global supplies for copper and uranium in particular.

LONDON - 

Mining has always been something of a risky business, but these days with huge improvements in technology it tends to be political revolutions or natural catastrophes which create the major problems for today's big mining operation and its parent company.  But seldom will have a single mine accident cost a company as much as the shaft accident at BHP Billiton's flagship Olympic Dam mine will have done before it is back into full operation.

To recap, on October 6^th a fully loaded skip plunged down the 800 m deep shaft taking with it much of the shaft's infrastructure, while meanwhile the plunging skip sent a counterbalanced empty unit flying up into the headframe damaging that severely too.  At the time of the accident some analysts estimated that the shaft would be out of use for three to six months - an estimate which now proves to be pretty accurate according to the BHP statements.

The damaged shaft had been handling some 80% of the mine's ore hoisting capacity.  A second lower capacity shaft will take on this duty, but overall the company reckons it will only be able to operate at around 25% of its haulage and hoisting capacity until some so far unspecified time in the March quarter next year.

Located 560 kilometres north of Adelaide, South Australia, Olympic Dam is a multi-mineral ore body. It is the world's fourth largest remaining copper deposit, fifth largest gold deposit and the largest known uranium deposit. It also contains significant quantities of silver. Olympic Dam is Australia's largest underground mine and one of the world's great mines. 

It was acquired by BHP when it took over WMC (formerly Western Mining Corporation) and has the capacity to produce up to around 220,000 tonnes of copper, some 5,000 tonnes of uranium oxide, around 100,000 ounces of gold and around 850,000 ounces of silver a year, although it has been performing somewhat below these capacity production levels of late

The mine's underground mining operation is highly mechanised, with automated rail transportation and underground crushing. The primary method of ore extraction is long hole open stoping with cemented aggregate fill. This method allows for large equipment to achieve high productivity and maximum ore recovery.

Ore is hoisted to the surface primarily through the shaft in which the accident occurred, where it is fed to one of two grinding circuits. After grinding, the resultant slurry passes to a flotation circuit where a series of flotation stages and a further regrinding activity produce a copper concentrate. The concentrate then passes through a leaching circuit which is principally designed to extract uranium from the copper minerals. Uranium is extracted in a solvent extraction plant, producing yellow-cake, which is subsequently calcined to produce uranium oxide concentrate and then packaged in drums for export sales.

After drying, copper concentrate is fed to an Outokumpu flash furnace smelter, which produces blister copper and flash furnace slag. Blister copper is transferred to anode furnaces for fire refining. Anode copper is transported to the refinery where the ISA electro-refining process is used to produce copper cathodes. The slimes from this process are treated separately to recover gold and silver.

Thus the mine is a fully integrated operation from rock extraction to refined copper and uranium concentrates as the primary products.

According to BHP's announcement earlier today, it expects the shaft to be out of commission until the March quarter next year and if this proves to be nearer the end of the quarter than the beginning, then it means the mine's production will have been curtailed by around 75% for close on six months.

Assuming production rates immediately before the accident the company could thus lose over 60,000 tonnes of copper production, 3 million lbs of uranium oxide, 30,000 ounces of gold and nearly 300,000 ounces of silver before it is back to full operation and at current metal prices this could add up to close to US$550 million - although this only represents around 1.1% of BHP Billiton's global revenues.  There is also of course the cost of completely refitting the shaft and repairing the headframe, and there may be add-on costs in terms of keeping the metallurgical plants going at way below the levels for which they have been designed.  This could be a particular problem for the flash smelter and the anode furnaces.

While the accident is serious, but not disastrous, for BHP given the overall financial strength of the company, it is providing a fillip for copper and uranium producers elsewhere - particularly the latter.  Copper was thought to be potentially moving into oversupply, so the loss of Olympic Dam output will help mitigate this.  Uranium, on the other hand, has been very much a ‘jam tomorrow' sector with prices, apart from an overdone spurt a couple of years ago, remaining pretty subdued.  While expectations are for a serious shortfall in output to develop as new nuclear power stations come into service over the next few years, plentiful supplies have been available to cover short term needs and prices have thus been depressed.  Olympic Dam produces about 7% of the world's uranium, so a severe curtailment of this output could have a significant impact on global spot prices in the short term.  Uranium and copper prices have both moved up today as a result, following BHP's assessment of how long it will take the mine to get back to full production.  It's an ill wind that blows nobody any good!

Meanwhile one suspects that Olympic Dam will utilise the enforced partial shutdown for maintenance and for fine tuning its underground mining operations so that when it does come back fully on stream it will be able to produce much closer to its nameplate capacity than it has been doing of late.

Disclaimer

MINEWEB is an interactive publication, with rolling deadlines through each day, commencing in the Sydney morning,  and concluding, 24 hours later,  in the Vancouver evening.  If you believe your side of an issue deserves inclusion, but has failed to meet one of our deadlines, you are invited to notify the Editor in Chief in Johannesburg, and we will include you in our editing and expanding on our stories. Email him at alechogg@gmail.com

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