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Demand driving expansions

CHINA’S insatiable appetite for steel is fuelling nearly $8 billion in iron ore projects in Western Australia.

In 2003, the three major iron ore producers committed to more than $2.5 billion in expansion projects to tap into current demand and exploit the State’s vast iron ore resources.

Other players such as Mount Gibson Iron and Portman Mining have smaller iron ore projects under way, while Hope Downs and Fortescue Metals Group have billions of dollars worth of potential iron ore projects that would prove significant.

However, access to transport infrastructure such as rail and port facilities – particularly in the remote Pilbara region – has long been a major sticking point for new iron ore operations.

Iron Ore mining in the Pilbara has traditionally been dominated by three operators – BHP Billiton Iron Ore and Hamersley Iron Pty Ltd and Robe River Mining Co Pty Ltd (both owned by Rio Tinto).

While this continues to be the case, the strong growth in demand fuelling iron ore price rises has created openings for other producers and spurred the majors to expedite expansion plans of existing facilities.

Also fuelling these expansion plans is strong market acceptance of resources such as Marra Mamba ore.

Rio Tinto and its joint venture participants in Robe River Iron Associates this month announced it will spend $142 million expanding its West Angeles iron ore mines to a nominal capacity of 25 million tonnes per year.

The 20 million tonne per year West Angeles mine, which was commissioned in 2002, is expected to be operating at full capacity in 2004.

This follows Rio Tinto’s approval of the expansion of Hamersley Iron’s Dampier Port and Yandicoogina mine, which has a total investment value of $1.25 billion.

The port expansion is expected to increase iron ore capacity from 74 million tonnes per annum to 116 million tonnes per annum.

These announcements followed BHP Billiton’s decision to fast track a $1 billion expansion of its Pilbara iron ore division to lift output to 100 million tonnes by the middle of next year.

BHP Billiton Iron Ore officially opened the new $US213 million mine Area C mine, rail and processing facilities in October, which also marked the start of a new joint venture with Korean steel maker POSCO.

This followed an announcement in July by the company that it would fast track the development to meet growing demand.

In July BHP Billiton spokesman Bob Kirkby said the accelerated development of Area C and the Products and Capacity Expansion would provide low cost, low risk means of maximising returns from a strong iron ore market.

“The accelerated expansion will also provide system capacity to ensure we can meet the ongoing growth in demand for both the new Marra Mamba ores and the existing Brockman and Yandi ores in the Asian region, particularly China,” he said.

In a bid to tackle the issue of infrastructure, mine “stranded” iron ore deposits and rival the major players, Andrew Forrest’s Fortescue Metal Group Limited revealed ambitious plans to spend $1.2 billion developing new open access rail and port infrastructure.

In July he unveiled a plan to build a railway through the heart of the Pilbara’s iron ore region and to establish a port near Port Hedland – a major port that services BHP Billiton and Hamersley Iron – that would service other producers shipping iron ore to Asia.

Despite suggestions that the plan is grandiose, Mr Forrest is confident that Fortescue, or FMG as it is known, will provide an open access alternative.

In a presentation at an extraordinary general meeting he said the opportunity would encompass creating “an Australian owned iron ore group, comparable in size with the current majors.”

In a message to shareholders Mr Forrest said the plan was to “develop and market previously stranded massive iron ore deposits in the Pilbara region of Western Australia, to the global steel industry.

“The supply side of the industry has been dominated by the major producers. New participants have been effectively kept at bay by restricting access to the existing infrastructure in WA – the private railways and ports,” he said.

“We are committed to facilitating the development via new open access infrastructure in the Pilbara to liberate stranded iron ore deposits (including our own) and provide alternative supply options for hungry steel mills around the world by rapidly lowering the previous barriers to entry.”

One project that might benefit from such a plan is Gina Rinehart’s $1.5 billion Hope Downs iron ore project.

Hope Downs Limited had sought to gain third party access to BHP Billiton’s existing Mt Newman line.

The Hope Downs iron ore project, which is currently seeking a major partner to help fund the development and expects to produce its first ore by 2007, reported it could trim $300 million from project development costs if building a separate railway line could be avoided.

Hope Downs has said it would be happy to contribute to the cost of upgrading rail facilities. BHP has said its railway is already working at capacity.

The companies are now in discussions over use of the railway following a recent court ruling in favour of Hope Downs.

Regions other than the Pilbara have also benefited from iron ore demand with Portman Mining  announcing a $20.3 million expansion of its Koolyanobbing Iron Ore Project, which was scaled back from $100 million following two years of delays due to environmental objections and a smaller iron ore deposit than previously thought.

Mount Gibson Iron Limited also has $50 million worth of iron ore projects underway in the State’s Mid West.

With the increased demand for iron ore, WA’s iron ore exporters are expected to gain competitive advantage in the annual iron ore price talks, which began last month.

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