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Rising power costs weigh on BHP Billiton's Olympic Dam
October 19, 2016 / 4:40 AM / a year ago

Rising power costs weigh on BHP Billiton's Olympic Dam

MELBOURNE (Reuters) - Power risks are so front of mind at global giant BHP Billiton’s Olympic Dam copper mine in South Australia, that the mine’s chief has an app on her phone to track electricity prices and is even considering building a power station for the site.

Copper anode stacks can be seen at BHP Billiton's Olympic Dam copper and uranium mine located in South Australia, May 24, 2016. REUTERS/Sonali Paul/File photo

After a state-wide blackout on Sept. 28 shut the mine for nearly two weeks, BHP is still assessing the impact on its copper output forecast for this year, it said in its quarterly report on Thursday.

The giant mine, some 500 km (310 miles) north of the state capital Adelaide, had been expected to produce around 200,000 tonnes or about 12 percent of BHP’s forecast copper output for the year to June 2017. Based on copper prices of $4,800 a tonne at the time, it lost about $2.6 million a day during the shutdown.

Olympic Dam was running at full tilt when massive storms knocked out four transmission lines in South Australia, blacking out the entire state within minutes as wind farms, then an interstate power link and gas-fired power stations shut down.

“The loss of power in the state is not something that you think could happen, certainly in Australia,” Jacqui McGill, who runs Olympic Dam, said in an interview.

And she warned that more blackouts were possible, with power shortages most likely on hot, cloudy days when there’s not much wind blowing.

Growth in wind power, which now drives more than a third of the state’s electricity supply, has led to the closure of coal-fired power stations and some gas-fired capacity, which has raised blackout risks and caused price spikes.

Officials stand near the grinding mill at BHP Billiton's Olympic Dam copper and uranium mine located in South Australia, May 24, 2016. REUTERS/Sonali Paul/File photo

Power price volatility experienced in the past year has raised costs for Olympic Dam, the state’s biggest single power consumer, McGill said.

She urged more power links to neighboring states and pricing that reflects the need for stable sources of power to back up intermittent sources like wind and solar to ease the risks of blackouts and cut costs.

“We’re a high fixed cost operation and our power costs are a significant proportion of those,” McGill said.

A sign adorns the building where mining company BHP Billiton has their office in Perth, Western Australia, November 19, 2015. REUTERS/David Gray/File photo

“If you were a truly national market and we could see prices realized in South Australia equivalent to the eastern seaboard, we’d be looking at 40 percent less in terms of our power costs.”

South Australia is studying building a new A$500 million ($380 million) electricity link to the eastern states.

McGill has fended off numerous proposals for BHP to help fund a power station to supply the site, but has not ruled it out as it needs secure supply.

“We’re certainly looking at investment options, looking at our own generation. But they’re not our preference,” she said.

She said BHP has time to review those options before it goes ahead with an investment in the next decade to expand the mine, but the board would need assurance that the state and federal government were taking steps to resolve power issues.

Reporting by Sonali Paul; Editing by Richard Pullin

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