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Breaking down BHP Billiton’s iron ore production costs
September 29, 2011
BHP Billiton organized a site tour of its Western Australia Iron Ore operations this week, providing valuable information about its production costs:
Source: BHP Billiton Site Tour Presentation, September 27 2011
Observations:
- BHP positions itself in the cost curve around $39/t CIF. Average iron ore price for the year ended June 2011 was $163/t, resulting in a 76% operating margin.
Implications:
- Combining the data from the two charts above, BHP’s breakdown of total iron ore costs of $39/t CIF China are as follows:
- US$9.4/t – Contractors
- US$7.0/t – Secondary taxes & royalties
- US$4.3/t – Freight, distribution & demurrage
- US$3.5/t – Depreciation, depletion & amortization
- US$3.1/t – Fuel & energy
- US$2.7/t – Raw materials & consumables
- US$2.7/t – Labor incl. consultants
- US$0.4/t – Exploration
- US$5.9/t – Other
©2011 | Wilfred Visser | thebusinessofmining.com
Categories: Market change
BHP Billiton, business, China, CIF, consultants, consumables, contractors, costs, DD&A, exploration, freight, fuel, iron ore, labor, mining, mining business, Pilbara, price, taxes
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Do you know who is the player with the best cost position on the curve (to the left of BHP)? Would that be Rio Tinto or Vale? Thank you
Based upon size and cost I think the lowest cost player is the combination of Rio Tinto’s iron ore operation in Western Australia. Rio Tinto operates as slightly lower cost than BHP Billiton.