OZ Minerals Delays Carrapateena Exploration to Seek Lower Costs

OZ Minerals Ltd., Australia’s third-biggest copper producer, has delayed exploration plans at the Carrapateena project it acquired in 2011 for $250 million amid rising costs.

Plans to use a boring machine to excavate an exploratory tunnel and carry out a pre-feasability study at the South Australia site are now too expensive, after tenders from potential contractors were higher than forecast, the Melbourne-based company’s Chairman Neil Hamilton told its annual general meeting today. OZ Minerals earlier this month raised its estimate for pre-production capital expenditure to A$3 billion (US$2.9 billion) from A$2 billion.

“One of the things we have been trying to do with this project is to accelerate it to get to a decision, to get more information,” Chief Executive Officer Terry Burgess said in an interview following the meeting. “I think we are realizing that this was costing us extra money, by asking the contractors to do things more quickly.”

The company will focus on lowering its production costs and the costs of contracts with suppliers last agreed at the height of Australia’s mining investment boom, Burgess said. The company said today it had revised its cost forecast to as much as $1.80 per pound of copper for 2013 from $1.20 in 2012.

The shares fell 3.5 percent to A$3.86 in Sydney trading and have lost 42 percent of their value this year. Australia’s benchmark S&P/ASX 200 index rose 0.2 percent.

Viability Decision

A decision will be made on the viability of the Carrapateena mine in 2015, when hiring mining services contractors may be cheaper as the number of resources projects falls, Burgess said. BHP Billiton Ltd., the world’s largest mining company, is targeting an 18 percent cut in capital spending in fiscal 2014, while Rio Tinto Group is seeking to cut $2 billion in costs this year across its mining and corporate offices.

“If the market continues to slow down with regards to mining services, we might see lower costs,” Burgess said in the interview. “That’s where we are really aiming, it’s a message we are giving to all our goods and service providers.”

Burgess said pressure on copper supply caused by the tunnel collapse at Freeport-McMoRan Copper & Gold Inc.’s Grasberg mine in Indonesia, and the suspension of mining at Rio Tinto’s Bingham Canyon in Utah, is likely to bolster prices. He said the incidents would probably help keep the price at $3.30 to $3.50 a pound. Copper for July delivery traded today on New York’s Comex at $3.3005 a pound.

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