With international demand for iron ore increasing and prices predicted to rise substantially again next year, Western Australia’s slew of new and emerging producers has been further buoyed by the recent multi billion dollar expansion in the Pilbara.
With international demand for iron ore increasing and prices predicted to rise substantially again next year, Western Australia’s slew of new and emerging producers has been further buoyed by the recent multi billion dollar expansion in the Pilbara.
Two of the three biggest iron ore miners in the world, BHP Billiton and Rio Tinto, have announced massive expansions to their Western Australian iron ore operations to meet growing demand from China.
Following a 71.5 per cent rise in iron ore prices earlier this year, US-based international investment bank Morgan Stanley has forecast a further 20 per cent increase next year.
BHP Billiton will spend $2 billion expanding its iron ore operations, including increasing capacity at its Area C mine by 20 million tonnes per annum (tpa) to 42mtpa by the end of 2007.
The expansion, including replacing ageing rail and port infrastructure, will boost BHP Billiton’s Pilbara export capacity to almost 130mtpa.
Rival Pilbara producer Rio Tinto will spend $1.8 billion to increase its export capacity to almost 200mtpa in the same period. This includes lifting Yandicoogina’s capacity from 36mtpa to 52mtpa.
Earlier this year, Rio Tinto took a half stake in the billion dollar Hope Downs project in the Pilbara, scheduled to come on stream in 2008 at 30mtpa.
Fortescue Metals Group executive director Graeme Rowley said he was very encouraged by the expansion, which clearly demonstrated future demand and the ongoing strength of the industry.
“It’s very important to the customers to have security of supply and there are concerns that 80 per cent of the seaboard iron ore trade is with just the big three suppliers – BHP Billiton, Rio Tinto and the giant Brazilian CVRD. To have a fourth major supplier would be worthwhile to them,” Mr Rowley said in reference to Fortescue.
Fortescue is aiming to ship its first ore in late 2007 for first stage production of 45mtpa, rising to 60mtpa at some unspecified time in the future.
Patersons research head Rob Brierley said BHP and Rio Tinto were playing it tight by incremental expansion to keep the newcomers out, while demonstrating to current and future customers they had the ability to fulfill future demand.
”But this cartel-like behaviour is making the Japanese, Korean and Chinese buyers a little nervous. They don’t like the price power held by the big three,” he said.
“The Pilbara expansions are positive for the emerging producers, particularly those looking to supply the smaller, second tier steelmakers.”
Recently listed Murchison Metals typifies this approach, but in the process has snared a major player in South Korean POSCO, the third largest producer in the world, which has taken a 5.5 per cent stake in the company. POSCO has the right to go to 19.9 per cent and take up to 10mtpa from Murchison’s $950 million second stage development at Jack Hills, 100 kilometres east of Meekatharra.
Murchison director Paul Kopejtka said work on the second stage bankable feasibility study, targeting up to 25mtpa over 20 years, would begin in the first half of next year.
Murchison has just signed its fourth sales contract, taking total sales from the $24 million Jack Hills first stage to 1.2mt, worth about $95 million. The first shipment is expected around March-April next year, with production rising to 1.6mt in 2007 and to 2mt the following year.
Perth-based Midwest Corp has moved closer to developing its $1.5 billion Weld Range and Koolanooka iron ore projects, near Cue and Morawa respectively, by signing a joint venture with giant Chinese trader Sinosteel Corp.
Under a separate deal, Midwest is scheduled to begin shipping 1mtpa from Geraldton over seven years, beginning before the end of this year.
Mt Gibson Iron is targeting annual sales worth more than $1 billion with a five-year plan based on a range of advanced projects and strategic partnerships, including one with China’s fourth largest steelmaker, to develop a 5mtpa operation at Extension Hill, 300km south-east of Geraldton.
Gindalbie Metals has begun pre-feasibility studies for the development of its Mt Karara deposit within its larger $720 million Blue Hills project, 220km east-south-east of Geraldton. First production is expected from its 1mtpa operation at Mungada, in the Blue Hills, beginning late next year, early 2007.
Portman is expected to produce an increased 8mt from its recently expanded Koolyanobbing operation, north of Southern Cross, before year’s end. The company will also ship about 1.2mtpa from its 50 per cent owned Cockatoo Island project, off the coast just north of Derby.
