The Commonwealth, State and Northern Territory governments have approved the Environmental Impact Statement (EIS) for the expansion following a six-year environmental assessment process.

The following are answers to frequently asked questions about the amended Indenture negotiated between the South Australian Government and BHP Billiton.

These FAQs are also available online at: www.olympicdameis.sa.gov.au

What is an Indenture and why has this approach been taken in relation to the Olympic Dam Expansion?

An Indenture is an agreement between the State and a company or companies that sets out the rights and obligations of both parties.

The Indenture is then given the force of law through a Ratification Act passed by the Parliament. The Ratification Act gives the Indenture precedence over any State laws to the extent that they are inconsistent with the rights and obligations set out in the Indenture.

As BHP Billiton and the State Government are already parties to an existing Indenture to enable the original underground mine at Olympic Dam, revising the agreement allows those provisions to be updated and extended to incorporate the new rights and obligations required for the construction and operation of the new open-pit mine as well as the new processing plants and supporting infrastructure.

Who are the parties to the revised Indenture?

The Indenture is the signed agreement between the State of South Australia, represented by the Indenture Minister, and the proponent, BHP Billiton Olympic Dam Corporation Pty Ltd (ODC) and BHP Billiton Nickel West Pty Ltd.

The current Olympic Dam project has been operating under an Indenture ratified by Parliament in 1982, which includes a provision to allow the agreement to be revised to take into account any future expansion.

Were the negotiations for the Indenture rushed to meet a political timetable?

This has been a lengthy process of negotiation that has taken place in tandem with a thorough environmental assessment of the expansion project using the major project provisions of the Development Act. There has always been an expectation that the environmental assessment by the Commonwealth, State and Northern Territory Governments and the negotiations on the amended Indenture would be concluded in sufficient time to allow the necessary legislation to be enacted by the South Australian Parliament by the end of 2011. Ratification of the Indenture within that time frame would then allow the board of BHP Billiton to make a business decision on whether to proceed with the expansion in the first quarter of 2012.

What does the Indenture comprise?

The Indenture sets out the rights and obligations of the two parties. In the case of the State, it ensures that BHP Billiton has legally binding obligations in respect of royalty payments, Great Artesian Basin (GAB) water usage, environmental management and rehabilitation and the provision of security for its rehabilitation obligations.

In return, BHP Billiton is provided with the long-term security required to proceed with its multibillion dollar investment in a project with an expected life of many decades. This certainty is provided by the granting of freehold over the expanded mining lease, as well as the provision of tenure for infrastructure constructed for its operations under the Indenture.

The South Australian Government continues to be responsible for providing the necessary infrastructure to support the regional centre of Roxby Downs for 9,000 people. This includes the provision of local government and community facilities, schools, police and medical facilities.

The amended Indenture ensures the independence of the Environmental Protection Authority in licensing and regulating BHP Billiton’s operations and supporting infrastructure including the desalination plant at Port Bonython. The amendments create a new compliance regime to environmentally manage the project. This requires BHP Billiton to develop and implement an Environmental Management Plan for the protection, management and rehabilitation of the environment.

What are the economic benefits to South Australia of approving an expansion of the existing Olympic Dam mine?

Olympic Dam is already a significant contributor to South Australia’s economy contributing $1.7 billion a year to the Gross State Product and 12 per cent of the State’s exports. More than half a billion dollars a year is spent by BHP Billiton directly on contracts with South Australian businesses and services. BHP Billiton estimates that the Olympic Dam expansion will generate up to 6000 new jobs during construction, a further 4000 full time positions at the expanded open pit mine and an estimated 15,000 new indirect jobs.

This valuable contribution to the State’s economy will increase significantly due to the construction work and expanded operating capacity. The expanded project is expected to increase Olympic Dam’s annual contribution to South Australia’s GSP to $6.9 billion at full operating capacity – that value is additional to the current business-as-usual contribution from
the existing underground mine. The major capital expenditure required for the expansion project is expected to occur within the first six years with some additional capital expenditure in the following five years. Ongoing capital investment is then expected during the next 18 year to support the operation of the expanded mine and processing facilities. BHP Billiton estimates that the project will lead to improved living standards through increased employment, higher levels of household income and consumption, with those benefits concentrated in South Australia.

How many jobs will be created by the Olympic Dam Expansion and will the majority of workers be sourced from South Australia?

BHP Billiton estimates the proposed expansion will require a construction workforce averaging 4,000 workers with a peak of about 6,000. Once the mine is constructed, the size of the operational workforce is expected to double to 8,000 workers. An estimated 15,000 new positions are expected to be created indirectly throughout the State to support the expansion. Many of the workers will be hired from within South Australia, although the size of the project and the specialist expertise required will mean attracting new workers to this State.

An increase in the Roxby Downs population is expected to lead to a rise in demand for goods and services in the region, opening up new opportunities for local commercial and retail development.

BHP Billiton will be required to prepare and implement an Industry and Workforce Participation Plan that will be reviewed annually and updated biennially. This plan will set out programs for ensuring the company creates opportunities for the local workforce, especially young South Australians and Aboriginal workers. It will also identify opportunities for local suppliers to benefit from the expansion project.

What steps has BHP Billiton taken to ensure that South Australian and Aboriginal businesses can participate in the Olympic Dam Project?

BHP Billiton has committed to work with regional economic development boards and the Industry Capability Network (ICN) to maximise opportunities for South Australian and Aboriginal businesses. (The ICN is an organisation that introduces Australian and New Zealand companies to the supply chains of major projects. ICN work with procurement and project managers to help identify competitive local suppliers. At the same time, ICN open up new opportunities to Australian and New Zealand suppliers within major projects both here and overseas).

Work has already commenced with the establishment of a web portal being hosted by Industry Capability Network. This is already building a database of SA businesses with an interest in the project and to facilitate the pre-qualification of SA businesses. It will also provide information about current and future opportunities and the tendering processes and to link existing or potential suppliers to improve local competitiveness.

BHP Billiton has also committed to conducting supply forums in SA to provide information on current and future business opportunities and pre-qualification and tendering processes. 900 people attended a series of forums conducted in July 2011.

BHP Billiton will also continue to fund its Olympic Dam Indigenous Participation Program to develop the capacity of Indigenous companies and contractors to supply goods and services to Olympic Dam. BHP Billiton has committed to use, where economically and commercially practicable, local labour, business supplies and services in its operations.

How much of the processing of the material mined at Olympic Dam will be carried out in South Australia before being shipped overseas?

At the existing operation, around 10 million tonnes per annum of ore is mined to produce 400,000 tpa of copper-rich concentrate, which is smelted and refined on-site to produce around 190,000 tpa of refined copper. After the expansion, around 72 million tonnes per annum of ore will be mined, to produce 2.4 mpta of copper-rich concentrate from which a total of 750,000 tonnes of copper could be produced.

• The existing processing plant’s smelter and refinery will be upgraded to process 800,000 tpa of copper concentrate and produce 350,000 tonnes of refined copper onsite.
• The remaining 1.6 mpta of concentrate will be produced for export from the additional ore processing facility at Olympic Dam, which will result in 400,000 tonnes of refined copper produced off-site.

The majority of uranium will be extracted from the 1.6 mpta of copper concentrate before it is exported.

The existing mining operation requires supplies and output to be transported by road. Increased volumes of traffic due to the expansion of output will eventually lead to rail becoming the primary mode of transport to and from Olympic Dam. A closed system of transport for copper concentrate containing uranium will be used for all rail transport from Olympic Dam to the Port of Darwin.

How are South Australians receiving value-for-money from the royalty rate?

The South Australian Government has secured an agreement with BHP Billiton to pay royalties in line with the current regime for copper, gold and uranium under the three-tiered system established under the Mining Act 1971 for the next 45 years. The current Mining Act 1971 royalty rates are 3.5 % for refined mineral products (copper and gold metal), 5 % for uranium oxide and 5% on uranium bearing copper concentrates. The expanded mine will not be eligible for the royalty concession available for new mining projects in South Australia.

The value of the royalty stream will be far greater than would have been received by the State Government if the Olympic Dam project was constrained to the current underground mine operations. In recent years, annual royalty revenue to the South Australian Government from the existing Olympic Dam mining operation has averaged nearly $60 million and the State estimates this will grow once the open-pit mine is in full production to about $350 million a year.

Royalties will be equalised under the Commonwealth grants formula with South Australia retaining a percentage of the revenue commensurate with the size of its population.

Will BHP Billiton be able to extract water without charge from the Great Artesian Basin?

No! BHP Billiton will be required to pay for the volume of water extracted from the Great Artesian Basin and saline wellfields, excluding water extraction activities undertaken on the Special Mineral Lease.

The charge will be based on the current NRM Board levy rate (currently $0.0318/KL) for the region (capped at $0.10/KL), for a period of 30 years from the commencement of the project. The charge will then revert to the current NRM Levy rate.

The company can offset the charges in any one year by carrying out approved offset projects for management of the water resource in the region agreed to by the Minister for Water. Any excess money will be used by the NRM Board to further the objectives of its 10-year strategic plan for management of natural water resources in the region.

How will other industries in South Australia benefit from the construction of the mine and its associated infrastructure?

Olympic Dam currently provides more than half a billion dollars a year to local industry through contracts placed in South Australia. The value of contracted work is expected to increase significantly through tendering of contracts for the construction of the expanded mine and ancillary infrastructure as well as the increased operation activities. BHP Billiton is committed to maximising local industry participation consistent with commercial practice including working with the South Australian Government’s Industry Capability Network and other industry organisations to ensure South Australian companies are made aware of opportunities arising from the construction work and the expanded operation.

The South Australian Government under the Indenture has first right of refusal to any excess water produced by the desalination plant near Whyalla. The Government also has first right to construct a reticulated system for delivering that excess water to potential customers.

Does the Indenture take into account the South Australian Government’s target for reducing greenhouse gas emissions?

BHP Billiton will produce and implement a Greenhouse Gas and Energy Management Plan which will include commitments to reduce greenhouse emissions in accordance with the development authorisation for the Olympic Dam expansion or any subsequent project.

BHP Billiton has committed to reducing greenhouse gas output to 60% of mining operation’s 1990 levels by 2050, which equates to 100,000 tonnes a year. The key commitments to reduce initial energy demand for the proposed expansion include sourcing the electricity required for the desalination plant and associated pumping from renewable energy and constructing an onsite cogeneration plant at Olympic Dam to capture waste heat generated by the production of sulphuric acid required for the new hydrometallurgical plant. Over time, and as the operation reaches full capacity, this waste heat could be used to generate up to 250 MW.

Other measures that are to be adopted to reach this emissions target include purchasing renewable energy and replacing mineral diesel fuel with biodiesel. BHP Billiton recognises the potential of local solar energy, regional geothermal, and the state’s wind resources, but currently no commercially viable solar or wind energy solutions have been identified at the
required base load power demand. Other companies continue to investigate potential geothermal heat anomalies in the Olympic Dam region, with the intention of proving the feasibility of base load power generation. BHP Billiton will continue to watch this industry with future opportunities in mind. 

What steps have been taken to ensure adequate environmental safeguards are in place?

The Olympic Dam Expansion has been subject to the most comprehensive environmental assessment of any project in the State’s history as part of the development approval announced by Minister for Mineral Resources Development Tom Koutsantonis. The development approved comprises more than 150 conditions set out in a 447-page Assessment Report. As part of the Indenture, BHP Billiton is obliged to comply with those conditions, which include continuous monitoring of its environmental impacts during the life of the expanded mine. These conditions cover all aspects of the mine expansion including the tailings storage facility as well as its supporting infrastructure such as roads, the upgraded smelter, the desalination plant, the landing facility and the pre-assembly yard.

Can the community have confidence in the environmental regime imposed by the Indenture?

The rights and obligations of the Indenture are legally enforceable once BHP Billiton gives a project notice. BHP Billiton has 12 months to do so from the date that the Bill comes into operation as a law. If this notice is not given, then unless this period is extended by Parliament, the variations do not have effect.

The independence of the Environmental Protection Authority has been recognised.

More than 150 conditions have been imposed on BHP Billiton as a requirement of its development approval by the State Government and similarly more than 100 conditions by the Commonwealth Government’s environmental approval. As the project is rolled out, BHP Billiton will be required to obtain more than 600 separate permits and licences for construction and operation of the mine and associated infrastructure.

Another important revision to the Bill is the enhancement of compliance and enforcement provisions to ensure that the project achieves approved environmental outcomes and brings the existing Ratification Act into line with current legislation in the Mining Act and Environmental Protection Act.

As part of this, BHP Billiton will develop a program for the protection, management and rehabilitation of the environment and will be subject to a strong compliance and enforcement regime. BHP Billiton will also incorporate a Greenhouse Gas and Energy Management Plan into this programme as a commitment to reducing its greenhouse gas emissions. The State
Government has also required BHP Billiton to provide a substantial bond as security for the performance of its rehabilitation and closure obligations. The formula adopted for calculating the size of the bond includes an incentive for the company to carry out progressive rehabilitation during the life of the mine. The current bond requirement for the expanded mine project is estimated to be $72 million in present value terms, although the liability value will be recalculated annually and the bond value adjusted accordingly over the life of the mine.

What is the process from here? Who will manage and enforce the obligations within the Indenture?

Once the Indenture amendments have come into operation in accordance with Part 3 of the Bill, both parties will be obliged to meet their rights and responsibilities within the agreed timeframes. The Indenture and the Ratification Act are committed to the Minister for Mineral Resources Development, who has the power to enforce the obligations on BHP Billiton as well as the responsibility to ensure that the State meets all its obligations. The EPA will monitor and enforce the compliance of BHP Billiton with environmental authorisations granted by the Environment Protection Authority.

Can the Indenture be changed in the future?

The provisions of the Indenture can only be varied by agreement in writing by both parties, which must then be introduced into both Houses of Parliament. If there is no resolution to disallow, the variation is passed within 12 days, and the agreement will then take effect.

Where can I find a copy of the Indenture?

The Indenture is a Schedule 1 to the Deed of Variation which is itself Schedule 1 to the Roxby Downs (Indenture Ratification) (Amendment of Indenture) Bill 2011 and will therefore be available to the public through Hansard once the Bill is introduced into Parliament.

The Bill will be available online at the State Parliament website at: www.parliament.sa.gov.au