Western Australian iron ore producers, revelling in record production levels, are moving quickly on expansion projects. Jim Hawtin reports.
In what could only be described as a red letter week for Western Australia’s booming iron ore industry, the sector has again turned it on for the record books.
Major international miners through to junior producers and explorers coincided during the past week in announcing record levels of production as well as a number of new and rapidly developing plans worth millions, and in some cases billions, of dollars.
Underpinning the booming sector is healthy customer demand, mainly from China.
According to the WA Department of Industry and Resources latest statistics, China’s insatiable appetite for steel accounted for almost 40 per cent of WA’s iron ore exports last financial year, pushing WA iron ore sales volumes to record levels for the fifth consecutive year.
WA sales volumes of iron ore increased by 7 per cent to 202 million tonnes, pushing values to a new record of $5.3 billion.
However, similar to most other commodities, the Australian dollar appreciation more than offsets average increases in the US dollar price.
As a result WA’s two major producers, global mining giants BHP Billiton and Rio Tinto, have been able to secure major long-term sales commitments with China worth billions of dollars.
The deals have also facilitated massive expansions of their mining operations in the Pilbara over the same period.
Responding to the expansions, both Rio and BHPB reported increased production at their Australian iron ore operations for the traditionally strong September quarter last week.
Rio Tinto said, although less than anticipated, it bounced back this quarter, after cyclone damage, to achieve a record third quarter production of 26 million tonnes.
The miner said expansions on both sides of its Pilbara iron-ore businesses, specifically at the Yandicoogina and West Angelas mines, plus the commissioning of the new Eastern Range mine contributed to the record production.
The two Rio-controlled businesses, Hamersley Iron and Robe River, are anticipating continued expansion to reach 173 million tonnes per annum shipping capacity by the end of 2005.
BHPB also announced a record quarterly production of 23.5 million tonnes of iron ore.
BHPB said the production was 10 per cent higher than its June, 2004, quarter production and it also reflected additional capacity created as a result of the completion of the Area C mine and a number of other expansion projects at its WA iron ore operations.
More recently, BHP Billiton announced a further expansion in the Pilbara.
The company said it had approved a $US575 million project, which will expand the capacity of its WA iron ore operations from 110 million tonnes per annum (Mtpa) to 118 Mtpa during the second half of next year.
Like BHPB and Rio Tinto, the boom has also encouraged a number of smaller companies looking to develop iron ore resources around the State.
Smaller iron ore producers such as Portman Mining and the Mid-West-based Mt Gibson Iron are both looking to increase their production.
Portman said early last week it had approved a $55 million expansion of its Koolyanobbing operations near Southern Cross.
The expansion, subject to the attainment of relevant mining licences, will increase production from five million tonnes to eight million tonnes per annum, comprising 6mtpa of standard Koolyanobbing product and 2mtpa of a slightly lower-quality product.
Portman managing director Barry Eldridge in a statement that illustrated the state of the industry, said the current record global demand and unabated Chinese growth would underpin rapid capital payback of the project.
Portman is also optimistic in its outlook for the iron ore market, saying that with pricing discussions for 2005 about to commence it is expected another significant increase in benchmark prices will be realised.
Yet, despite the buoyed outlook, Portman is struggling with slippages at its high-grade Cockatoo Island iron ore mine off the Kimberley coast.
While it said this did not affect its September production, it would cause the deferment of a shipment of 50,000 tonnes of product.
Nearby on Koolan Island things are advancing more positively for another iron ore junior, Aztec Resources.
Following a recent drilling campaign, Aztec said it had lifted the iron ore resource at its Koolan project, which it picked up from BHP, by almost 60 per cent.
“The substantial resource upgrade is expected to underpin a mine life of up to 15 years with an initial production rate of two million tonnes of iron ore a year,” Aztec chief executive, Ian Burston told the stock exchange.
Further down the coast in the emerging iron ore region of the Mid-West, three companies are looking to establish.
Mt Gibson Iron, which began iron ore production earlier this year, is looking to ramp up production from 1.8 million tonnes per annum to 2.1 mtpa by January 2005.
Midwest Corporation and Gindalbie Gold both aspire to join Mount Gibson as iron ore miners and also propose building pellet plants in the region.
While producers scramble to lift production there are also a handful of ambitious players looking to break into the Pilbara region – traditionally a two-horse town (BHPB and Rio Tinto).
Gina Rinehart’s Hancock Prospecting and South Africa’s Kumba Australia’s $1.7billion Hope Downs project and Andrew Forrest’s Fortescue Metals Group face formidable barriers in their efforts to establish multi-billion-dollar mines in the next few years. The Hope Downs project is on hold while Kumba and Hancock Prospecting try to sort out their partnership arrangements.
Last week FMG announced it secured its third binding sales agreement in as many weeks with a Chinese steel mill.
The agreements totaling a notional $65 million will help to underpin the development of FMG’s $1.8 billion Pilbara iron ore and infrastructure project.
To add to the confusion in the Pilbara, last week wealthy Gold Coast property investor and mining promoter Clive Palmer announced the recommencement of his long-awaited plans to develop the large George Palmer deposit near Cape Preston.
Mr Palmer said in a statement that his private company, International Minerals had signed a Memorandum of Understanding with large Chinese steel mill Wuhan Iron and Steel and another party worth $20 billion.
As part of the deal, Wuhan will contribute most of the $1.8 billion capital required to build the project and take slightly less than 50 per cent of equity in International Minerals in return for the supply of 125 million tonnes of high grade iron ore concentrate to Wuhan. According to the company, the foreshadowed investment in International Minerals share capital would be the largest investment by any offshore parties in a single iron ore project in Western Australia.
The reporter holds Aztec shares.
