BHP Billiton to bypass Rio Tinto in lowering production cost of iron ore

Author: Paul Ploumis07 Jul 2014 Last updated at 07:56:14 GMT

CANBERRA (Scrap Monster): Mining giant BHP Billiton is aiming to overtake Rio Tinto in lowering the production cost of iron ore. Deutsche Bank estimates that the all in cash of BHP costs at USD 51 per tonne while that of Rio’s is at USD 45 per tonne. Other analysts state that the BHP breaks even at USD 55 a tonne, when compared to USD 44 a tonne of Rio. Vale, the Brazilian mining giant has estimated costs of about USD75 per tonne, mainly due to the shipment of ore further from Brazil to China. For Fortescue Metal group Limited the all in cash is slightly lower than that of Vale, about US$72 per tonne. However the main factor to consider is the quality of iron ore between the mining giants. Due to lower ore content, most of iron ore from Fortescue is sold at lower price than the spot prices. The discount prices have increased, with Rio is providing the discounts in the range between 6 pct and 13 pct and Fortescue is providing the customers with discounts rates at 14 pct, when compared to the average rate of two pct last year. Jimmy Wilson, head of iron ore at BHP said that the company wanted to compete with Rio on production cost. He also noted that the major miners were not standing still either and all are working to reduce their production costs. Deutsche bank analysts advised that the Rio could further reduce the production costs by USD 2 to USD 3 per tonne by using more automation, benefits from economies of sales as it is producing about 360 million tonnes from 295 million tonnes and also blending ore and newer mines. BHP will resurrect its $20 billion out harbor project at Port Hedland, as a part to cut production costs.