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Breaking down BHP Billiton’s iron ore production costs

September 29, 2011 2 comments

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