Home > Market change > Breaking down BHP Billiton’s iron ore production costs

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

Advertisements
  1. Caio Guimarães
    February 12, 2012 at 5:20 pm

    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

  2. March 10, 2012 at 4:51 pm

    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.

  1. No trackbacks yet.
Comments are closed.
%d bloggers like this: