Kennecott is planning expansion

0 Comments | Deseret News (Salt Lake City), Feb 5, 2005 | by Jenifer K. Nii Deseret Morning News

Kennecott Utah Copper's parent company will invest $170 million to expand mine operations, purchase new equipment and make other improvements it says will extend the life of the mine until 2017.

The expansion likely will mean more jobs at Kennecott, but details about numbers are still to be forthcoming.

Louie Cononelos, spokesman for Kennecott, confirmed information released Friday by the mine's parent company, Rio Tinto Group, regarding the $170 million investment.

"It's new news, and it's good news," Cononelos said.

The investment will include a pit expansion that will extend the life of the Bingham Canyon Mine from 2012 to 2017, Cononelos said. "It not only adds mine life, but it also gives us time to look at future mine expansions, whether on the surface or underground," he said.

In addition to the pit expansion, Cononelos said the money will go toward new equipment, building new facilities (including a new truck shop facility at the Bingham mine), relocating current facilities that will have to be moved to accommodate the expansion and expanding operations at the company's Copperton concentrator.

Those projects, plus a planned expansion in Kennecott's truck fleet, ultimately will result in "a slight increase in employment," Cononelos said.

Rio Tinto approved the expenditure after reporting its adjusted earnings for 2004 of $2.2 billion. Kennecott's adjusted earnings for the year were $293 million, Cononelos said, compared to $88 million the year before.

Cononelos attributed the increase to greater efficiencies within the organization and higher metal prices.

"The price of copper in 2003 averaged 80 cents per pound," he said. "In 2004, it averaged about $1.30. So given Kennecott Utah Copper's production, which remains pretty constant year in and year out, plus the fact that there were higher gold prices, it ended up being a bountiful year for us."

In total, Rio Tinto has approved and is studying between $6 billion and $8 billion of projects, London-based Rio said in a slide presentation. It could spend almost $3 billion annually for 2005 and 2006, compared with $2.2 billion last year, finance director Guy Elliott said.

China's 9.5 percent economic growth last year fueled demand for coal and iron ore and sent prices for copper to a 16-year high in December. The surge in prices will enable Rio to return as much as $1.5 billion to investors through share buybacks after fueling record profit in 2004.

"With the capital expenditure, Rio is in effect saying prices will be strong," said Jason Teh, who helps manage $5 billion in Australian dollars ($3.85 billion U.S.) at Investors Mutual Ltd. in Sydney, including Rio shares. "The results were pretty much expected given the strong commodities cycle."

Rio Tinto is studying expanding iron ore mines in Australia and Brazil, its Hail Creek coal mine and an aluminum smelter at Bell Bay in Australia. Rival BHP Billiton is spending a record $4 billion on expansion in the year ending June 30.

"This will sustain our growth," chief executive officer Leigh Clifford told analysts and investors in Australia via a videoconference from London. "We've not seen markets like this in the last 20 years."

Rio Tinto is already spending more than $1 billion expanding iron ore production and has signed long-term contracts with Chinese steelmakers, including Shanghai Baosteel Group, to sell as much as half of its capacity to China.

Clifford declined to comment on commodity prices over the longer term.

But Goldman Sachs JBWere analyst Neil Goodwill said, "We expect earnings to continue to increase on the back of higher commodity prices being realized particularly" for iron ore and coal. In a report dated Feb. 3, Goodwill estimated Rio Tinto earnings may increase by 41 percent to $3.95 billion in 2005.

E-mail: jnii@desnews.com