Iron ore producer Mount Gibson Iron has scrapped plans for a pellet plant near Geraldton after concluding it would cost more than three times as much to build the plant in Australia compared to China.
Iron ore producer Mount Gibson Iron has scrapped plans for a pellet plant near Geraldton after concluding it would cost more than three times as much to build the plant in Australia compared to China.
Mt Gibson said capital costs for the production of a five million tonne pellet plant would be over $US250 million ($350 million) compared with approximately $US75 million in China.
Its decision highlights the challenge facing mining companies seeking to invest in downstream processing of raw materials.
Companies looking to build mineral and gas processing plants in Australia have repeatedly cited high construction costs as a barrier.
The high capital costs reflect labour rates in Australia, which currently are being pushed higher by the skills shortage, and the remote location of most mineral and petroleum resources.
A countervailing factor in Australia’s favour is the low cost of energy, particularly gas, which reduces operating costs.
Mt Gibson, which commenced iron ore production earlier this year, is one of three companies looking to boost the iron ore industry in the Mid West region.
Midwest Corporation and Gindalbie Gold both aspire to join Mount Gibson as iron ore miners and also propose building pellet plants in the region.
One of the major constraints facing the companies is the limited port and rail infrastructure in the region, although this issue is being addressed.
Mt Gibson managing director Brian Johnson said production of iron ore was settling into a pattern after early problems with rail and port services associated with its Tallering Peak mine.
The company said it was on schedule to ship 450,000 tonnes of iron ore this quarter and was confident of ramping up production from 1.8 million tonnes per annum to 2.1 mtpa in January 2005, based on assurances of extra rail wagon availability from the Australian Railroad Group.
In its recent June quarter report, Mt Gibson said the Geraldton Port Authority had difficulty meeting its contractual obligation to load iron ore on a continuous 24-hour-a-day basis without undue shipping delays.
It said mechanical problems with the port’s equipment exacerbated the delays but expected new equipment would largely alleviate the problem.
Mt Gibson announced this week a series of transactions that effectively swap a 54 per cent interest in its magnetite iron ore deposits for a 30 per cent stake in Hong Kong-based company Asia Iron Holdings.
Asia Iron is currently negotiating a joint venture with Chinese steel producer Nanjing Iron & Steel to develop two magnetite mines in the Mid West and two 2.5mtpa iron pellet plants in China.
The commissioning of the first mine at Koolanooka is expected in September 2006, with the second to follow 12 months later.
Mr Johnson said that despite increasing demand for magnetite concentrate, production and sale of the concentrate in its raw form would not be economic because of the high transport costs and port charges Mt Gibson faced.
Therefore, the company has opted for vertical integration with the end user of the pellets.
