BHP offers little hope of revisiting giant copper mine expansion

By James Regan

SYDNEY, Oct 31 (Reuters) - Expansion by BHP Billiton (NYSE: BBL - news) 's giant Olympic Dam mine in Australia, once considered among its prized growth assets, is off the agenda due to low metals prices and productivity inefficiencies, the company said on Friday.

BHP shelved plans for a multi-billion-dollar expansion of the copper, gold and uranium mine in 2012 after a year-long study, citing a need to reign in spending as the Australian mining boom started to fade.

Since then business leaders and politicians, including Australian Prime Minister Tony Abbott, have implored BHP to reconsider its decision, hoping to alleviate job losses caused by the exit of car manufacturing in Australia.

But BHP has stood firm and on Friday reiterated its mothballing of expansion plans for Olympic Dam.

"Our immediate challenge is how we self-fund the required investment by being prudent and creative with our capital and engaging our workforce to not only reduce costs but also accelerate the initiatives that will reduce our costs," Darryl Cuzzubbo, Olympic Dam asset president, said in a business speech emailed to Reuters.

The mine was originally designed to yield 200,000 tonnes of copper annually but consistently runs under that level due to maintenance issues, such as smelting and equipment repairs.

"Once we are able to run our existing operation at full capacity, we then - and only then - earn the right to grow," Cuzzubbo said.

Prices for copper, uranium and gold from Olympic Dam have dropped 33, 50 and 35 percent respectively from 2011 highs, according to Cuzzubbo, creating a "very tough situation."

BHP's blueprint to quadruple output from Olympic Dam - the fourth-largest known copper deposit and largest uranium source in the world - was part of a now defunct five-year programme to spend $80 billion digging new mines and solidifying the Anglo-Australian company as the world's biggest resources company.

Analysts estimated at the time it would cost BHP $30 billion to complete the expansion and require development of a separate open pit mine adjacent to an existing underground lode.

The company has a licence to mine Olympic Dam until 2036 and it is extendable for 50 more years thereafter.

As it stands, BHP expects production at Olympic Dam this year to remain broadly unchanged from the prior year.

Olympic Dam was the driving force in a $7 billion takeover of WMC Resources by BHP in 2008 that also brought with it Australian nickel assets. Those assets have since been put up for sale, thus far unsuccessfully. (Editing by Michael Perry)