BHP this week approved a $2.46 billion Capex investment for the Spence Growth Option (SGO) at the Spence open-pit copper mine in northern Chile, which will extend the mine life by more than 50 years. Andrew Mackenzie, CEO, BHP, said the SGO project supports the company’s strategy to deliver near-term, valuable copper production.

In the first 10 years of operation, incremental production from SGO will be approximately 185,000 metric tons per year (mt/y) of payable copper in concentrate and 4,000 mt/y of payable molybdenum, with first production expected in the 2021 financial year.

SGO was rigorously evaluated using BHP’s Capital Allocation Framework and, at mid-case consensus prices, has an expected internal rate of return of 16% and an expected payback period of 4.5 years from first production.

“Execution of the Spence Growth Option will create long-term value for shareholders in one of our preferred commodities,” Mackenzie said. “The project significantly extends the life of our Spence operation and unlocks the potential of the large, quality resource.”

“SGO has been extensively studied and we have made significant improvements to project cost and design so that it is able to compete in our portfolio of attractive development options,” Mackenzie said.

The SGO project will draw on experience developed in the construction of the Organic Growth Project 1 concentrator and desalination plant at Escondida, and create up to 5,000 jobs during the construction phase. The project includes the design, engineering and construction of a conventional large-scale sulphide concentrator for both copper and molybdenum with a 95,000-mt/d nominal ore throughput capacity.

In addition, SGO will require a new 1,000-liter-per-second desalination plant located at Mejillones Bay and a 154-kilometer water pipeline from the plant to the Spence mine site. These will be built and operated by a third party under a Build, Own, Operate and Transfer contract, which has been separately awarded, with nominal, undiscounted value of lease payment obligations over a 20-year contract term totaling $1.43 billion.