Xstrata is now in the midst of a fundamental transformation of our portfolio through the development of our organic growth pipeline. Organic growth is not new for Xstrata – our teams have already successfully delivered 14 new or expanded mines, alongside the higher profile acquisitions that were a vital element of the Group’s initial stages of transformation. Nonetheless, the scale and number of projects being developed by our teams today represent a step change in our growth strategy and will transform Xstrata’s volumes and unit costs profoundly.
By the end of 2014, volumes will be increased by 50% over 2009 production and the introduction of lower cost capacity is anticipated to deliver a reduction of over 20% in average operating costs. I expect our approved and near-term projects to deliver an average return of around 22% predicated on conservative long-run commodity prices.
Momentum in delivering growth from our portfolio gathered pace during the year, with the delivery of three major projects and the approval of $10 billion of growth projects during 2010. In total, 20 major expansions or new mines are currently in construction, representing total capital expenditure of $18 billion, of which $14 billion remains to be spent. We are now entering into the most intensive phase of our organic growth programme to date. This year, activity will ramp up further with five projects due to commence production in 2011. A further $7.5 billion of capital projects will reach the approval stage during the course of this year.
The eight million tonnes per annum Mangoola thermal coal project in Australia is on budget and ahead of schedule to commission its coal handling and preparation plant in the first half of 2011, together with the Newlands underground extension that will add three million tonnes per annum of thermal coal at full production. The ATCOM East thermal coal mine in South Africa will also commence production in the latter part of the year, ramping up to four million tonnes of saleable production per annum.
Construction commenced on the $1.3 billion Ulan West and $1.4 billion Ravensworth North coal projects following their approval during the year, to deliver 6.7 million tonnes of thermal coal from 2014 and eight million tonnes of thermal and semi-soft coking coal from 2012 respectively.
Xstrata Copper now has five major projects in construction to deliver a 50% increase in copper volumes by the end of 2014. The $1.47 billion Antapaccay expansion to the Tintaya copper mine in southern Peru was approved in July 2010 as part of an integrated regional strategy to progressively increase copper production from southern Peru to 500,000 tonnes by the end of 2014. In the six months since the project was approved, facilities for the construction camp have been completed to accommodate the current 1,600 workers on site, increasing to 4,500 people by the end of 2011. The on-site construction for the foundations of the crusher and the three large grinding mills is progressing on schedule and all the major components for the mills are already in Peru, ready to be installed. Commissioning is on track for the second half of 2012. The successful execution of Antapaccay lays the foundations for the greenfield $4.2 billion Las Bambas project, also approved during the year. Las Bambas will share key infrastructure with Antapaccay, achieving operational and capital synergies and enabling skills to be transferred on completion of the Antapaccay project to the construction of Las Bambas.
The $1.3 billion expansion to the Antamina copper-zinc operation in Peru to increase capacity to 130,000 tonnes per day is on track to commence commissioning at the end of this year, while an expansion to the Lomas Bayas operation is progressing well to extend the life of the operation to 2024. Ernest Henry mine’s conversion to a major underground shaft operation to extend the life of the operation remains on schedule, and first magnetite was recently produced from the associated magnetite concentrate plant which will create an export by-product from the operation.
The Koniambo nickel project in New Caledonia remains on track to commence production next year before ramping up to full production in 2014. During 2010, the project achieved a number of key milestones, including the completion of dredging for the port, construction of the power station stack and the successful construction and delivery of the modules required to construct the metallurgical complex from the engineering yard in China. All modules had been installed by January 2011. On-site construction of the metallurgical facility and power station is currently underway and will be complete in the early part of next year, to allow testing and commissioning to commence. The project is now entering its peak construction phase with some 3,500 employees and contractors currently on-site.
The expansion of George Fisher zinc-lead mine will increase production by 29% to 4.5 million tonnes of ore per annum and the Black Star Deeps projects will extend the life of the operation to 2016. Both projects were approved during 2010 and, together with feasibility studies into an expansion of the Handlebar Hill mine and the development of the high-grade Lady Loretta deposit, aim to exploit Xstrata’s extensive zinc resource base at Mount Isa, the largest zinc resource in the world.
Zinc-lead resources at Xstrata’s McArthur River mine are the third largest in the world and a project to double current production at McArthur River Mine is due for approval this year. The project involves a 15-year extension to the current mine life at the expanded production rate, and envisages the application of Xstrata’s proprietary hydrometallurgical technology to enable bulk concentrates to be processed at one or more of Xstrata’s smelters. In Canada, the Bracemac-McLeod project to replace Perseverance mine was approved in July and initiatives continue to extend the life of the Brunswick operations.
Initial production is expected from the western decline shaft of the Eland underground platinum operation during the first quarter of this year, followed by initial production from the eastern decline in the second quarter. Once Eland reaches full production towards the end of 2015, production of platinum will double to 300,000 ounces per annum. A second phase expansion to the Lion ferrochrome smelting complex in South Africa is underway, using proprietary energy-efficient technology, while construction of the Tswelopele mega-pelletizing plant is well advanced to further improve operating efficiency and reduce costs.
Work on earlier stage growth projects is equally significant. The next generation of projects to replenish our pipeline is currently in the feasibility or scoping stage and offers the potential to deliver sustained volume growth once the current suite of projects reach full production. Capital will be spent over the next five years to complete conceptual, pre-feasibility and feasibility studies into this next cadre of projects, including the large-scale Tampakan copper-gold operation in the Philippines, the massive Wandoan coal project, and El Pachón copper project in Argentina. Amongst the various conceptual studies underway, a concept study into a substantial expansion to the world-class Collahuasi copper operation to produce one million tonnes of copper per annum is due to be completed in early 2011.
As we ramp up our programme of organic growth, expansionary capital spending will rise accordingly to reach peak levels of around $6.8 billion this year and next. In addition to the five projects that will reach initial production this year, major projects including the Koniambo greenfield nickel project, the Antapaccay expansion to our Tintaya copper mine in southern Peru and the Ulan West coal mine in Australia will be contributing volume and cost improvements to Xstrata’s performance by the end of 2012. Our decision to continue investing in the development of our organic options through the downturn of late 2008 and 2009 will permit Xstrata to introduce new volumes into a market with strong supply-demand fundamentals.
