Headwinds for Roxby Downs property investors as BHP's Olympic Dam expansion cancelled

The decision by BHP Billiton to cancel its $30 billion Olympic Dam mine expansion project is likely to have direct repercussions for the regional South Australian property markets of Roxby Downs, Port Augusta and Whyalla as well as for the wider South Australian economy.

All three property markets had been tipped to take off again once the long-mooted expansion project kicked off, which would have significantly expanded BHP’s existing mining and processing operation at Olympic Dam, 560 kilometres north of Adelaide.

Figures compiled by RP Data to May 2012 show that Roxby Downs house prices have been rising by a healthy 13.6%  per annum over the past 10 years with a median price of $440,000.

Over the past year to May house price growth picked up to 11.4% having slowed to 7.3% over the past three years - during a time when BHP was awaiting final approval on its Olympic Dam project.

Recent sales at Roxby Downs include a three-bedroom house that sold for $445,000 at the end of June, having last traded for $138,000 in 2003.

A four-bedroom house sold for $488,000 in July, having last traded for $160,000 in 2003.

BHP Billiton chief executive Marius Kloppers says current market conditions, including subdued commodity prices and higher capital costs, have led to the decision to investigate "an alternative, less capital-intensive design of the Olympic Dam open-pit expansion".

“As we finalised all the details of the project in the context of current market conditions, our strategy and capital management priorities, it became clear that the right decision  for the company and its shareholders was to continue studies to develop a less capital intensive option to replace the underground mine at Olympic Dam," says Kloppers.

BHP received approval for the project in March this year, with environmental impact studies dating back to 2005.

The planned open-pit mine was expected operate simultaneously with the existing underground mine.

By 2050 the size of the pit was expected to grow to be 4.1 kilometres long, 3.5 kilometres wide and one kilometre deep. Eventually, mining the planned open pit would have produced 60 million tonnes per annum of ore, equivalent to an additional annual rate of refined copper production of 515,000 tonnes.

The Olympic Dam project was expected to “put billions of dollars into the South Australian economy for decades to come”, said BHP in a booklet on the project released last year.

Apart from expansion of the mine itself, BHP also planned to build a new airport at Olympic Dam to cater for large commercial jets and the increase in passengers and air traffic and build a new accommodation village for workers.

Transport plans included the building of a landing facility about 12 kilometres south of Port Augusta and extensive use of the Stuart Highway between Port Augusta and and Olympic Dam.

The population of Roxby Downs township was expected to double in size to around 10,000 due to BHP providing additional services and accommodation.

Roxby Downs has a current population of 4,700, according to census 2011.

At the time approval for the dam was granted Sam Saggers from Positive Real Estate wrote that investors who purchased properties in 2008 – and who had been waiting a long time for an announcement – would be able to “recycle their equity and tighten their rents”.

“The Olympic Dam mine is the mothership of projects, so I expect the South Australia economy and workforce to reap the rewards,” wrote Saggers in Property Observer in March.

“I think we will see a lot of interest in Whyalla by the middle of this year, with clients looking for capital gains as a spin off from the project. Vacancy rates will tighten up and the outlook is a lot brighter.

Saggers wrote that Whyalla and nearby Port Augusta will derive a great deal from this expansion

“During the construction phase, 6,000 jobs will be created, and the mine will add another 4,000 jobs to its normal operations. Indirectly, the mine expansion will create 15,000 jobs, and the total number of jobs becoming available will total 25,000.

Mineral processing at Olympic Dam began in 1988, initially producing 45,000 tonnes per annum of copper plus associated products of uranium oxide, gold and silver.

Between 1997 and 1999 there was a major expansion of the mine and minerals processing plant.

In recent years annual copper production has averaged about 180,000 tonnes, with 4,000 tonnes of uranium oxide, 80,000 ounces of gold and 800,000 ounces of silver.

Copper produced at Olympic Dam is sold to global and domestic markets. The uranium oxide is sold to power stations for base load power generation. All of the gold and silver is sent to the Australian Mint in Perth.