May 1 (Bloomberg) -- BHP Billiton Ltd., the world’s largest mining company, may decide next year on a possible $15 billion expansion of its Olympic Dam mine in Australia and is in talks to supply uranium from the project to China.

BHP expects all necessary government approvals to be obtained in 2010 and “work commenced soon afterwards,” BHP said in a draft environmental study released today in Adelaide. The timing of board approval will depend on prevailing economic conditions, Dean Dalla Valle, chief operating officer of BHP’s uranium unit and the Olympic Dam operation, told reporters.

Metal markets may recover in the second half, helped by China’s 4 trillion yuan ($586 billion) stimulus package, Rio Tinto Group said in March. The spot price of uranium may jump 35 percent next year amid a decline in supply and strong growth in demand, according to Australia’s commodity forecaster.

“By historical standards, the current price is pretty high and I imagine they’ll will be trying to lock in as many sales contracts as they can,” Gavin Wendt, senior resources analyst at Fat Prophets Funds Management, said from Sydney. “Energy will be a key commodity and especially for Asian economies.”

BHP declined 0.8 percent to A$33 at the 4:10 p.m. Sydney time close on the Australian stock exchange. It’s gained 8.4 percent this year.

Largest Deposit

Olympic Dam is the world’s largest uranium deposit and the world’s fourth-largest copper lode. BHP produces uranium, copper and gold from the existing underground operation. The expansion would convert the operation into an open pit.

Work could start as early as next April on an accommodation village for construction workers, the company said in the 4,600- page study that took five-years to complete and cost A$25 million ($18 million). BHP acquired Olympic Dam when it took over WMC Resources Ltd. for A$9.2 billion in March 2005.

Uranium demand may rise as the number of nuclear power reactors may jump 30 percent by 2020, driven by India and China, the World Nuclear Association estimates. BHP signed accords with customers in Europe, the U.S. and Asia last October to sell uranium from the proposed expansion.

China “has the largest nuclear development build in the world so we see them as very important,” BHP’s Dalla Valle said. “Exporting uranium to new customers like China will be an integral part of creating value from the Olympic Dam ore body.”

Five Stages

If approved, the expansion would take 11 years and be completed in five stages, BHP said. The existing smelter will be expanded and a new concentrator and plant will be built, it said.

The operation will use 253 megaliters of water a day and 200 megaliters of that will be pumped 320 kilometers (199 miles)in a pipeline from a desalination plant in the Upper Spencer Gulf, the company said in the statement. A 270 kilometer electricity transmission line will be built along with a gas- fired power station, it said.

Before ore can be mined from the expanded operation, 410 million metric tons of earth needs to be removed and this could take five years, BHP said. Once complete, the mine would be 4.1 kilometers long, 3.5 kilometers wide and 1 kilometer deep.

The expansion will increase the mine’s copper output fourfold to 750,000 tons a year, boost gold production eightfold and uranium by almost fivefold, according to company forecasts.

The cost of the expansion may be as much as much as $15 billion, according to estimates by Merrill Lynch & Co. and JPMorgan Chase & Co. BHP’s most recent cost estimate for the mine expansion was $6 billion. Dalla Valle declined today to comment on the estimated cost.

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net

Last Updated: May 1, 2009 03:27 EDT