BHP a step ahead on the cost curve BHP Billiton has hinted that its iron ore expansion in the Pilbara could be done more cheaply than Rio Tinto's, in what would be a reversal of the two companies' traditional positions on the cost curve. Speaking in Houston over the past 24 hours, BHP chief executive Andrew Mackenzie revealed conversations he had held with his iron ore boss Jimmy Wilson, where the pair discussed boosting iron ore exports at a one-off cost of about $100 for each new annual export tonne created. BHP is expected to export 212 million tonnes from the Pilbara in fiscal 2014, and the low-cost expansion Mr Mackenzie and Mr Wilson were referring to will be the 50-million-tonne increase that will lift Pilbara exports to 270 million tonnes. "He's assured me that the overall increment from 220 to 270 million tonnes per annum will be delivered at a capital efficiency at, or better than, $US100 per annual tonne," Mr Mackenzie said. We continue to see significant opportunity for further growth in iron ore, and we'll start very much with some of the lowest-capital, higher-return projects. A capital efficiency of $US100 a tonne is low by modern standards in the Pilbara, with Rio Tinto suggesting in recent weeks that its coming expansion in the Pilbara would be completed at a cost of just over $US120 per tonne. The disparity between the two companies could be influenced by the different nature of the works needed to expand, but nonetheless the costing edge will be a nice novelty for BHP, traditionally a slightly higher-cost producer in the Pilbara. "You can imagine my challenge to Jimmy is to do better and to continue to work our productivity agenda both in what we've got and what we might invest to actually get to a number which is only two digits in millions of dollars per tonnes rather than three," said Mr Mackenzie, while stressing that such an outcome was not guaranteed. Mr Mackenzie's comments imply an overall cost for BHP of about $US5 billion to expand its Pilbara iron ore division to 270 million tonnes, but given the development plan for the Pilbara is not fully determined, the numbers are far from settled. BHP is focusing on removing bottlenecks from its export system and has previously highlighted the production chain between iron ore arriving at Port Hedland and being loaded onto ships as one area to be improved. The company recently said it was spending $US301 million to install two new ship loaders at Port Hedland. Mr Mackenzie also speculated that productivity measures could see it lift its long-term coking coal production from Queensland above official guidance without spending further capital. He also revealed he had been "very frustrated" by the poor performance of the copper smelter at Olympic Dam in South Australia, and flagged that a shutdown at the smelter might be necessary early next year.