Is This A Game-Changer For BHP Billiton?

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  • BHP Billiton Limited (ADR) BHP shares are down 42 percent year-to-date, and are trading at the low end of their 52-week range of $27.41 - $55.77.
  • Macquarie’s Hayden Bairstow maintained an Outperform rating on the company, with price targets of A$27.00, £12.50 and R260.
  • The Escondida production plan is evolving, while the Spence Hypogene project could be a game changer.

Analyst Hayden Bairstow said, “The production plan for Escondida has evolved significantly since the last Chilean site tour in 2012.” He added that the production strategy has evolved from a dual concentrator approach that was capable of throughput rates of around 277ktpd to a three concentrator strategy with capacity of about 375ktpd.

While the new mine plan continues to allow access to most of the highgrade ore that was originally expected, it does so without having to demolish the Los Colorados concentrator. “Access to the high-grade area is crucial for BHP as it partially offsets recent and expected grade declines at Escondida,” Bairstow wrote.

BHP Billiton had previously indicated that Escondida’s organic growth options would involve a fourth concentrator and a high-grade underground mine. The analyst added, however that grades are unlikely to recover to their historical levels in the foreseeable future.

The US$3.2bn Spence Hypogene project is currently in pre-feasibility phase and could deliver first production in FY20. “The Hypogene project is a significant game changer for Spence given that it has the potential to extend the mine life by more than 50 years and increase production levels to ~270ktpa over the first 10 years,” the Macquarie report stated.

If the technology proves to be successful, it may be used at Cerro Colorado, Bairstow added.

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Posted In: Analyst ColorLong IdeasReiterationAnalyst RatingsTrading IdeasHayden BairstowMacquarie
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