Olympic Dam Production in 1Q20

Old news, but BHP’s Olympic Dam mine had a drop in uranium production in the first quarter of 2020. The news broke as the global COVID-19 pandemic was starting to heat up…but I was skeptical when others tried to link the shortfall to the virus. In this post, I will share my data and methodology in how I approached this mystery. Yes, this post is very wonky and probably irrelevant to most readers, but it should give you an idea of what’s out there in terms of public data. Once Kazatomprom begins to publicize post-COVID uranium production numbers, for instance, I will look to do a similar analysis.

The Mine

Olympic Dam is an underground mine of truly staggering size located north of Adelaide in South Australia. The main business of the mine is copper, but the deposit has valuable quantities of uranium, silver, and gold alongside the copper. While Cameco’s McArthur River is on care and maintenance, Olympic Dam is the largest uranium mine in the world despite not being, you know, a uranium mine.

Production Drops in 1Q20

BHP reported total uranium production of 776 tonnes of uranium (tU) in 1Q20. For direct comparison, production in 4Q19 was 949 tU and production in 1Q19 was 1,106 tU. On the surface, this looks like an eye-popping decrease, but because Olympic Dam had (at the time and in hindsight) avoided a COVID-19 outbreak, I was suspicious that the two were unrelated.

BHP is a publicly traded company, so they post an unbelievable amount of data for their shareholders on their corporate website in the financial results and operational reviews section. Specifically, you are looking for the production statistics within the annual operational review reports. It wasn’t displayed in the most convenient way, but by combining data from many quarterly and annual reports, I was able to collate all uranium production and stick it in an Excel spreadsheet. For the nine months ending in March 2020, the uranium data is at the bottom of page 19 of this report.

Data Analysis

The first thing I did, of course, was to convert tons of uranium to pounds of uranium. I am an American, after all, and we buy uranium in pounds. However, this is not as simple as it seems: while there are roughly 2.2 pounds in a kilogram (so 2,200 pounds in a metric ton), a “tU” is actually measuring only the uranium metal content in the U3O8 oxide. Consequently, you must “add” oxygen weight when going from tU to pounds U3O8, so the conversion factor is actually 2600 pounds of U3O8 per tU. [Ed. note: this number should look familiar because it is similar to the 2.613 used to convert pounds of U3O8 in kilograms of uranium (kgU) contained in UF6. The extra 0.013 in that factor is a 0.5% “loss factor” in the conversion process.] Anyway, TradeTech provides a handy table for these conversions on their website.

1Q20 Uranium Production at OD, in context

I’ve put the data in tU and pounds on a Google Sheet in case you are curious.

Honestly, though, presented this way, this data set doesn’t do much for me. There have been worse quarters and better quarters than 1Q20, but that’s an unscientific approach at best. So I decided to make a colorful quartile map. By highlighting the entire range of values and using Excel’s QUARTILE function [QUARTILE(cell range, 3) yields the value of the largest cell in the 3rd quartile], you can figure out where the dividing lines between production quartiles are.

Then using these quartile dividing lines, I wrote an IF statement to output the quarterly production in the proper column for each quartile. If the production in a quarter is between the minimum and the top of the first quartile, then its value reads out in the 1st quartile column. If it’s between the minimum and maximum for the second quartile, it reads out in the 2nd column, etc. etc.

Quartile divisions for OD quarterly uranium production
Selection from Excel spreadsheet to show how quartile divisions can be organized

Then, you can graph the four columns on the same graph. If the “#N/A” value is graphed, it doesn’t show up. In the Format Data Series menu, accessible by right-clicking any column, you can set the series overlap to 100% so that, instead of a column chart where the four columns sit side-by-side, they overlap. As there is only one value in each “quarter,” you see what looks like a single column chart. I changed the best production quartile to green, the second to yellow, the third to orange, and the fourth to red…

Now THIS graph tells a better story. 1Q20 is 4th quartile, but it’s not so far below the third quartile, which is itself not far below the second quartile.

As a bonus graph, I decided to look at where 1Q20 compared to average quarterly production of the previous ten years (% up or down). It’s down about 15%. That’s not insignificant, but probably not the doomsday situation that folks on uranium twitter hailed it as initially.

Verdict: yes, production was down, but it wasn’t THAT far down.

Extension: What About Copper?

As I mentioned in the introduction, OD produces uranium but it is, above all else, a copper mine. How did 1Q20’s copper production vary over the same period?

Copper production, as you can see, was below average but firmly 3rd quartile. With the exception of whatever happened in 1Q10 (there appears to have been some sort of mining accident in late 2009), it turns out copper and uranium production are not all that correlated. By looking at the percent difference from quarterly average production for copper and compare it to uranium, the “delta” is all over the place.

This graph shows the difference between OD’s performance in uranium production and copper production as compared to the average quarter. In other words, if copper production was 20% above average and uranium production was 10% below average, the graph would show 30% difference. If the number is “0%,” then uranium and copper production are correlated. Instead, we can see that uranium and copper production experience over/underproduction at different times.

Conclusion: the most important lesson

I’m a data guy, so I immediately dove into this data set in early April to try to make sense of the numbers. But if I had just read the quarterly report instead, I would have seen that there was “unplanned downtime at the [Olympic Dam] smeler during the March 2020 quarter.” It’s certainly a simpler explanation…and one that didn’t involve hours of digging through BHP’s back catalog of operation documents.

Feel free to leave a comment on Twitter (@808sandU3O8) or at 808sandU3O8 at gmail.com. Thanks for reading!

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