Dominant iron ore sector leads resources growth

The iron ore sector has been at the forefront of Western Australia’s resources boom and, while industry heavyweights Rio Tinto and BHP Billiton still dominate, new producers are gradually emerging.

Rio and BHP are in the midst of massive expansion projects and are actively planning further growth projects, to ensure they remain leading global suppliers.

Rio’s current expansion projects will lift its capacity in the Pilbara to 220 million tonnes per year and its long-term plan is to lift output to 320mt.

Similarly, BHP is in the process of lifting capacity to 155mt and is considering options to get to 300mt.

Fortescue Metals Group is progressing with its plan to become the third big iron ore producer in the Pilbara, with construction of its $2.5 billion project well advanced.

It is aiming to commence shipments in May 2008 and ramp up to full output of 45mt.

In addition, FMG has announced that it is considering options to lift output to 200mt.

Perth-based Gindalbie Metals is set to become WA’s fourth major iron ore producer after signing deals last week with its Chinese joint venture partner Ansteel.

The joint venture plans to produce 3mt at its Mungada hematite mine and 8mt at its Karara magnetite mine in the Mid-West.

In addition, the joint venture is “likely to significantly expand the production rate at Karara in the near future”, according to Gindalbie.

Such an increase would propel Gindalbie past existing producers Mt Gibson and Portman.

Mt Gibson has been forced to restrict output at its Tallering Peak mine because of capacity constraints at Geraldton port.

Once the port problem is addressed, Mt Gibson is keen to crank up production at Tallering Peak and proceed with the $84 million development of its Extension Hill hematite mine.

Combined with production from its Koolan Island mine in the Kimberley, Mt Gibson is aiming to lift output to 10mt.

That would put it just ahead of Portman, which is aiming to produce about 8mt next year at its Koolyannobing mine.

The accompanying table lists many other companies that are hoping to join the ranks of iron ore producers.

Murshison Metals and Midwest Corporation have commenced production at their small ‘starter’ projects in the Mid-West, which have output of 1mt to 2mt per year, and are hoping to proceed with much larger iron ore projects.

The biggest challenge facing the two groups is the need to develop new rail and port infrastructure in the Mid-West to service their planned mines (see page 26).

While the infrastructure debate continues, the two companies are proceeding with drilling programs and detailed studies of their mining projects.

Midwest is proceeding with a pre-feasibility study after engineering firm Hatch completed a scoping study, which concluded that Midwest would have to spend $579 million on its mine and processing facilities.

Similarly, Murchison Metals has engaged Calibre Projects and Snowden Group to complete a mine feasibility study following the recent completion of a baseline study in May.

Another company constrained by limited infrastructure, particularly power supplies, is Grange Resources, which is pursuing development of the Southdown iron ore mine near Albany.

In the Pilbara, Chinese company CITIC Pacific is a strong contender to be the next major iron ore miner through its Balmoral project, south of Dampier.

CITIC paid $285 million last year to Queensland business executive Clive Palmer for the right to mine one billion tonnes of magnetite ore at the Balmoral deposit, and is planning to pay a further $285 million for the right to mine a second billion-tonne deposit.

If it proceeds with these plans, CITIC would produce 24mt of iron ore per year.

The group has estimated it will cost about $2.2 billion to establish infrastructure for its project, which includes construction of a new port at Cape Preston, near to its tenements.

Perth company Australasian Resources, which counts Mr Palmer as its major shareholder and Chinese steel producer Shougang as a shareholder and strategic partner, is looking to use the CITIC infrastructure to support the development of its Balmoral South project at a cost of $2.6 billion.

Other aspiring producers in the Pilbara are seeking to leverage the region’s existing road, rail and port infrastructure, including the planned expansion of the Port Hedland port capacity.

These include Atlas Iron’s Pardoo project, Cape Lambert Iron Ore’s namesake project and Aurox Resources’ Balla Balla project.