PUBLIC ANNOUNCEMENT 96-27

 

EXPANSION AT OLYMPIC DAM TO PRODUCE 200,000 TONNES PER

ANNUM OF REFINED COPPER TO COST $A1.25 BILLION

 

The Directors of WMC Limited ("WMC") announce the proposed expansion of the Olympic Dam operation in South Australia to increase the current annual production capacity of 85,000 tonnes of refined copper (plus associated products) to 200,000 tonnes by 2001. It is estimated that the cost of the expansion will be about A$ 1.25 billion (in 1996 dollars).

The Olympic Darn orebody is the 6th largest copper, and the single largest uranium, orebody in the world. This, combined with the forecast of steady growth in world demand for copper and a growing shortage of uranium supply for electricity generation, provides the foundations for the proposed expansion.

The Olympic Dam orebody was discovered by WMC in 1975. The orebody is situated 560 kilometres north, north west of Adelaide and contains Proved and Probable Reserves of 580 million tonnes of copper, uranium oxide, gold and silver mineralisation, with an average copper grade of 2.1% and uranium oxide grade of 0.6 kg/tonne.

The operation commenced production in June, 1988 at an annual rate of 45,000 tonnes of copper and 1,000 tonnes of uranium oxide. The current annual production capacity is approximately 85,000 tonnes of copper, 1,500 tonnes of uranium oxide, 30,000 ounces of gold and 400,000 ounces of silver from throughput of 3 million tonnes of ore.

An $8.5 million feasibility study has been undertaken over the last 2 years assessing the expansion options, and has resulted in a recommendation that production be increased to a throughput of 8.5 million tonnes of ore per annum by 2001 to produce about 200,000 tonnes of copper, 3,700 tonnes of uranium oxide, 75,000 ounces of gold and 950,000 ounces of silver.

The Indenture between WMC and the State of South Australia addresses conditions relating to the operations including public infrastructure and the town of Roxby Downs, and is based on a copper production level up to 150,000 tonnes per annum. The existing environmental approvals are in place to cover the expansion up to 150,000 tonnes per annum of copper production plus associated products.

 Production will increase progressively in steps over the 4 year construction period with planned production up to 150,000 tonnes of copper per annum, from a throughput of approximately 6 million tonnes of ore, being achieved by 1999.

Expansion above 150,000 tonnes of copper per annum will be subject to obtaining regulatory and environmental approvals.

In addition to the expansion to 200,000 tonnes per annum the Company will also be seeking an extension to the Indenture and enviromental approvals for a production rate of up to 350,000 tonnes per annum. This approval level will provide the flexibility for future expansion. There are, however, no current plans in place to increase the annual capacity above 8.5 million tonnes of ore per annum.

WMC will fund the expansion by a mixture of external debt and internally generated flinds. The expenditure will be spread over 5 years. The Directors have also determined to reinstate the Dividend Reinvestment Plan as referred to in the separate Public Announcement also released today.

We have consulted with a broad range of local and South Australian parties in relation to this expansion and this consultative process will continue over the forthcoming months.

By order of the Board

 

BACKGROUND MATERIAL

 

Olympic Dam Expansion Proposal

. Production cornmenced in 1988 at:

45,000 tonnes of copper (plus associated products) per annum

1 .5 million tonnes of ore processed

 

e First optimisation of the operation 1992:

. 66,000 tonnes of copper

2.4 million tonnes of ore

 

Second optimisation - 1995:

85,000 tonnes of copper

3 million tonnes of ore

 

Forecast figures for 1 996, show Olympic Dam processing of

3 million tonnes of ore, for production of:

85,000 tonnes of copper;

1 500 tonnes of uranium oxide;

30,000 ounces of gold; and

400,000 ounces of silver, and

 

From 1 990 to 1 996, preliminary assessments of expansion options were carried out. In 1995-96 an $8.5 million feasibility study conducted by WMC revealed that the Olympic Dam operation could return higher earnings at increased production levels.

  Existing Environmental Impact Statement provides for production of up to 1 50,000 tonnes of copper annually plus associated products.

  The proposal currently under consideration would increase Olympic Dam production by 2001 to 200,000 tonnes of copper plus associated products annually.

 

This would see production of:

Uranium oxide -3,700 tonnes;

Gold 75,000 ounces; and

Silver 950,000 ounces.

  WMC will submit proposals for environmental approvals for the proposed project plus an even larger project than currently contemplated production of up to 350,000 tonnes of copper annually - although there are no current plans to lift output to this level.

  This is consistent with original EIS process 1 50,000 tonnes approvals; 45,000 tonnes initial production - to provide the flexibility for future expansion.

  

Jobs

  

Currently:

1 ,000 jobs on-site; and

3,000 jobs created off-site (using accepted multipliers for the mining industry).

 

As result of expansion:

An additional 1 ,000 jobs on-site during 3-year construction program.

Using accepted industry multipliers, up to 3,000 additional jobs created off-site in areas such as manufacturing, transport and in general labor market.

Up to 200 new perrnanent full-time jobs at completion of expansion.

Investment

 

Total investment in the Olympic Dam project to date stands at $1.1 billion.

  Under the expansion, a further $ I .25 billion would be invested -the biggest single capital investment in WMC's history. This

would include:

expanded plant

expanded mine

expanded town and facilities

additional power requirement - ETSA, gas or combination -from existing 45MW to 120MW plus

expanded Tailings Retention System.

 

Costs associated with the expansion would be incurred progressively, with the project funded by a combination of:

internally generated funds; and

external debt.

In addition, WMC is reintroducing the Dividend Reinvestment Plan effective from the dividend payable in the first half of the 1 996197 year.

 

Benefits to South Australia

 

An expansion of Olympic Dam would mean a considerable boost to the South Australian economy and a major increase in revenue for the South Australian Government.

 The $ 1 .25 billion investment represents expenditure of about $850 for every man, woman and child in South Australia.

 Based on previous experience, approximately 70 percent of the total project expenditure of $ 1 .25 billion will be within SA.

 Royalty payments and other revenue to the State Government will rise sharply.

  Since production began at Olympic Dam in 1988, the project has returned $45m to the South Australian Government in royalty payments and $30m in payroll tax and stamp duty.

The current royalty rate under the Indenture is 1 % higher than for projects under the Mining Act.

  Royalties on production of approximately $ 1 2 million annually are currently delivered to the State Government.

  Depending on metals prices: annual royalty payments to the State are likely to be more than double the existing level when production reaches 200,000 tonnes of copper plus associated products in 2001.

  In addition, an expansion at Olympic Dam would deliver increased payroll tax.

  Subject to metals prices, revenues would rise from $270 million at present to approximately $750 million in 2001-02.

 

Environment

 

Environmental Impact Assessment

 

Under the existing Environmental Impact Statement, Olympic Dam may produce up to 1 50,000 tonnes of copper and associated products annually.

  The entire project has recently undergone a full environmental review following its designation in 1 995 under the Commonwealth Environment Protection (Impact of Proposals) Act. This process confirmed the original EIS approvals granted in 1983.

 

Water

 

Olympic Dam has water licences to enable production to increase to 200,000 tonnes. No new water approvals would be required to enable expansion to this production capacity.

  Current licences enable Olympic Dam to draw within limits which are estimated to be 42 megalitres of water from the Great Artesian Basin daily. The present estimates indicate the average daily water requirement for 200,000 tonnes production will be much less than this.

 

Water requirements will be met via:

Borefield A on the South western shores of Lake Eyre and the southern extremities of the GAB; and,

Borefield B on the eastern shores of Lake Eyre and more than 100 km further into the GAB.

 

A 1995 study of the GAB by the Australian Bureau of Agriculture Resource and Economics (ABARE) showed daily recharge of the SA section of the GAB totals 450 megalitres.

Daily extraction is around 233 megalitres as follows:

pastoral bores 1 30 megalitres

mound springs 66 megalitres

Moomba oil and gas fields 22 megalitres

Olympic Dam and Roxby Downs - 14.3 megalitres

 

Tailings Retention System

The Olympic Dam tailings retention system is made up of two principal elements:

solids storage cells; and e lined liquids evaporation ponds.

  Solid storage cells will be trebled approximately in size to minimise risk of seepage.

  The area covered by the evaporation ponds will increase by about 20 per cent.

  Methods of reducing water consumption and recycling of liquid residue are being implemented

Roxby Downs Township

 Roxby Downs Indenture

  Expansion of Olympic Dam will require changes to the Roxby Downs Indenture the legislation under which the mine, plant and town are administered.

This will be undertaken in discussion with the State Government, with changes subject to ratification by State Parliament.

 

The Indenture covers a range of issues including:

environmental management and protection;

water supplies;

provision of infrastructure such as:

power;

public health services

education facilities; and

other public services.

 

Roxby Downs expansion

  Approximately 500 additional permanent residents by 2001.

142 additional houses.

Temporary increase in population of approximately 1 ,000 at the construction camp during the construction program.

 

Markets

 Copper

 

World wide consumption of refined copper is around 12.0 million tonnes growing at about 3 per cent per annum. Growth rates in Asia are much higher.

Copper is a commodity and therefore experiences price cycles. In the last 1 0 years the London Metal Exchange (LME) price has been as low as 70 cents a pound (US) and as high as $ 1 .40 a pound (US).

Olympic Dam produces high quality LME "Grade A" refined copper cathode and will find ready markets in Australia, Asia and Europe for all expanded production.

The principal uses for copper are in the construction, transport and communication industries.

 

Uranium

 

More than 1 7 per cent of the world' 5 electricity is generated by nuclear energy. Many developed countries generate more than 3 0 per cent of electricity through nuclear power.

  Demand has outstripped mine production and civil stockpiles of uranium in industrialised countries have been eroded to the extent that they will be exhausted by the year 2000.

  Contracts for the purchase of Olympic Dam uranium production at 200 1 levels and beyond are currently being sought.

 

Gold/silver

 

Gold and silver would continue to be sold into local bullion markets.

 

Increased shipments

 

Currently:

 

7 trucks per day carry copper from Olympic Dam to Port Adelaide. This will increase to 1 1 when the expansion is completed; uranium is transported from Olympic Dam by convoy to Port Adelaide 3 to 4 times a year, for sea freight to Europe, then on to customers

 

Future:

  12 sea shipments of copper are made to Europe from Port Adelaide each year;

90 sea shipments of copper are made to Asia each year; and

120- 150 road and rail shipments of copper are made from Port Adelaide each month.