August 17, 2017 / 11:57 AM / a year ago

UPDATE 1-BHP to spend $2.5 bln on extending life of Chilean copper mine

* BHP under pressure to increase shareholder returns

* Rival Rio Tinto also expanding copper production (Adds context, quotes, detail)

LONDON, Aug 17 (Reuters) - Mining major BHP said on Thursday it was spending $2.46 billion to extend the life of the Spence copper mine in northern Chile by more than 50 years, creating up to 5,000 jobs and bringing new output online from 2021.

BHP Chief Executive Officer Andrew Mackenzie, under pressure from activist investors Elliott Advisors to increase shareholder returns, said the project supported BHP’s strategy of delivering near-term, valuable copper production.

“Execution of the Spence Growth Option will create long-term value for shareholders in one of our preferred commodities,” Mackenzie said in a statement.

Copper prices have hit their highest levels since late 2014 as expectations mount of strong demand and tighter supply following a fall in spending linked to the commodity price crash of 2015-2016.

BHP, the world’s biggest miner, and rival Rio Tinto rely heavily on iron ore for profits, but both firms are shifting emphasis as global commodity needs change and as expected rise electric vehicle demand increases consumption of minerals such as copper and nickel.

Rio Tinto has embarked on a giant underground extension of its copper operations at Oyu Tolgoi in Mongolia, expected to come online around the end of this decade.

BHP also announced earlier this month it was increasing investment in nickel, used in batteries.

In the first decade of operation, extra output from the Spence mine extension will be approximately 185,000 tonnes per year of copper concentrate and 4,000 tonnes of molybdenum, used in making steel. First production is expected in 2021.

BHP said it had evaluated the project and expected a payback period of 4.5 years from first production.

The project will need a new 1,000 litre per second desalination plant. A consortium of Mitsui & Co and Grupo Cobra was in exclusive talks with BHP to build the $800 million plant, Reuters reported last week. (Reporting by Barbara Lewis in London and Esha Vaish in Bengaluru; Editing by Edmund Blair)

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