BHP approves $2.9 billion spend on iron ore project

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LONDON (Reuters) - BHP on Thursday approved spending $2.9 billion (2.19 billion pounds) to develop its Western Australian South Flank iron ore project in the central Pilbara, and said the quality of the mineral would raise the overall grade of its regional output.

The project, which should produce its first ore in 2021, will fully replace production from the 80 million tonnes-per-year Yandi mine, which is reaching the end of its economic life.

In a statement BHP, which has an 85 percent stake in South Flank, said the quality of the ore would take the average grade for the company's Western Australian iron ore to 62 percent from 61 percent.

Its Japanese partners Itochu Corp <8001.T>, which has an 8 percent stake in the project, and Mitsui & Co Ltd <8031.T>, with 7 percent, will spend $270 million and $240 million respectively, bringing the total development cost to $3.4 billion, they said.

Fellow Anglo-Australian major miner Rio Tinto is ramping up a new iron ore mine at Silvergrass, also in the Pilbara, and also high grade.

Mining executives say China is increasingly demanding high quality ore, which commands a premium and limits pollution as less rock needs to be processed, although an analysis of Reuters data shows the country is struggling to obtain it.

(Reporting by Barbara Lewis Additional reporting by Yuka Obayashi in TOKYO; Editing by Alexandra Hudson)

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