BHP chews over ways to expand iron ore production in Australia

The world's number one miner, BHP Billiton (LON/ASX/NYSE:BHP), wants to leave the news of its first decrease in annual profit in three years behind by focusing on finding the most lucrative way to increase iron ore production in Western Australia.

To that extent, the company said Friday it is evaluating alternatives to maximize its capacity from the inner harbour at Port Hedland, one of Australia’s largest ports. The miner restated it is committed to a $20 billion expansion of the harbour.

Preliminary studies have shown BHP could potentially ship more than the current 240 million tons per year of iron ore, which is by far the company's most profitable business.

At the Melbourne-based company and the other big diversified miners, iron ore essentially drove the boom.

In December of 2004 the big three producers – BHP, Vale and Rio Tinto – hiked the price they charged for iron ore by 72% taking it above $20 per tonne for the first time in history. Fast-forward seven years and China pays $135 per tonne, down from record highs of $180 in September last year.

Now that BHP has shown clear signs that the good times are over, the company is embracing its all-time-favourite division by announcing it has been given the right to develop two additional berths at the inner harbour – part of its push to stretch capacity.

"Development of the outer harbour remains attractive," Iron Ore President Jimmy Wilson said in a statement, adding that development would require costly construction including: dredging a shipping channel and a four-kilometre jetty.

"The right to develop the wharfs combined with efforts to ease congestion in the inner harbour would meanwhile allow the company to boost port capacity at a lower cost," Wilson added.

The company, which has more than 40,000 employees and operates in dozens of countries, has recently scaled back or postponed several expensive expansion projects, including the Olympic Dam mine in South Australia and Escondida in Chile. However, it said it still stands by its proposed Canadian Jansen potash mine.