The head of the WA Department of Industry and Resources, Jim Limerick, declared last week that the local nickel industry had become the state’s second most valuable mineral sector after iron ore.
The head of the WA Department of Industry and Resources, Jim Limerick, declared last week that the local nickel industry had become the state’s second most valuable mineral sector after iron ore.
Mr Limerick said that, thanks to booming international nickel prices, the state’s nickel sales grew by 20 per cent to reach a record high of $3.2 billion in 2004.
It may surprise some, then, that only six or seven years ago there were relatively few major nickel producers and the state had no junior nickel industry to speak of.
In 2005, however, with almost 20 miners producing nickel in Western Australia and myriad other nickel explorers active in the state, the sector is thriving from top to bottom.
Interestingly, just as the nickel sector has recently developed mostly at the junior end, largely on the back off WMC Resources’ sell-off of its Kambalda mines, iron ore mining – the state’s biggest and most valuable mining industry – is looking to replicate that change.
The iron ore mining industry in WA has been dominated by major mining houses with consolidation in 1990s putting the industry almost totally in the hands of two players.
Last year the world’s two biggest diversified miners, BHP Billiton and Rio Tinto, with their giant Pilbara operations, accounted for the lion’s share of record 217 million tonnes of iron ore exported from WA.
Portman Mining, with its much smaller iron ore mining operations near Southern Cross, and more recent entrant Mt Gibson Iron, account for a tiny proportion of the market.
But while the majors have commissioned huge expansions, which have helped increase WA’s iron ore exports and maintained their market share positions, growing numbers of mid-sized and junior mining companies have started entering the iron ore sector.
The catalyst to this change is the emergence of China as a big buyer, as steel demand has grown in line with the rapidly growing economy, especially in the construction and manufacturing sectors.
Chinese needs have largely propelled global iron ore demand and, ultimately, prices to a point where WA’s marginal or smaller iron ore resources are currently seen as viable.
Prices in the past year have skyrocketed, with big producers achieving rises of about 70 per cent on the latest round of negotiations.
It is right along the lines predicted by Rio Tinto CEO Leigh Clifford, who told a Perth conference last year that China would underpin unprecedented growth in the local sector, unrivalled even by commencement of the massive Pilbara iron ore reserves in the late 1950s and early 1960s.
The change in the past decade has been significant. Through the 1990s and into 2000 lower world prices and the enormous infrastructure costs required for iron ore mining were seen as barriers to most projects.
Now, however, the juniors are in with a chance as the Chinese and other Asian customers look to vertically integrate their businesses and inject cash into the local opportunities.
Not only are the higher prices making some projects viable, but the emerging opportunities underpinned by Chinese and Asian demand are alternatives for Asian steel makers, releasing them from the grasp of the majors when it comes to pricing negotiations.
The question is, how sustainable are these new projects?
Hartleys analyst Jonathan Battershill said sustainability was dependent on China’s growth rates.
“If the price drops then most of them [the projects] look fairly ordinary,” he said.
The most recent are two WA-based companies, Murchison Metals and Territory Iron, which floated on the Australian Stock Exchange in the past two months.
A third WA company, Iron Ore Holdings, is scheduled to list late next month.
These plays come on top of some more sizeable project proposals, including Andrew Forrest’s Fortescue Metals Group, Gina Rhinehart’s Hancock Prospecting, and Clive Palmer’s International Minerals.
Others to emerge touting fresh spins on WA iron ore projects include Grange Resources, Polaris Metals, AusQuest, Atlas Gold, Aztec Resources, Gindalbie Metals, and MidWest Corporation.
