The unprecedented China-fed demand for iron ore has set the stage for a new golden age of development in Western Australia. The rush for the big Pilbara producers to catch up with demand has been coupled with the emergence of the state’s second iron ore r
Western Australia’s iron ore production is expected to jump from 250 million tonnes a year to 400mt/year by the end of the decade, pushing annual state royalties to just under $1 billion as the industry cranks up in pursuit of the runaway Chinese economy.
That’s a big jump when you consider it took the industry more than 35 years to reach 175mt/year and it has sparked a rush for stocks in junior iron ore explorers more akin to the gold sector in a boom.
The plunge on speculative juniors such as Cazaly Resources, Ausquest, Iron Ore Holdings, Midwest and Gindalbie, was preceded by a series of court actions aimed at securing more prospective ground.
The litigation started in August when Cazaly pegged part of the prospective Shovelanna Hill iron ore deposit, previously held by heavyweight international Rio Tinto.
Claim and counter claim over Rio Tinto’s alleged late lodgment of its permit renewal look destined for a long hearing in the courts, with State Development Minister Alan Carpenter holding his counsel on his ability to make a decision on the matter under a previous precedent.
However, Mr Carpenter is more forthright in his view that 2000-2015 “will be seen as the golden age of development in WA”, an unprecedented period of growth and change that reinforces the state as the powerhouse not only of the Australian economy, but the Asia Pacific region’s entire resources industry.
WA is now the world’s second largest seaborne iron ore trader after Brazil, supplying 17 per cent of world production, 90 per cent of it going to the booming north-east Asian market.
China is WA’s biggest client in terms of tonnage, currently taking 106mt/year, or 41 per cent of its entire iron ore imports. Traditional market Japan takes 78mt/year, which accounts for 64 per cent of its iron ore imports, and WA also supplies more than 60 per cent of South Korea’s (24mt) and Taiwan’s (10mt) annual requirements.
While a conservative Bill Preston, WA Department of Industry and Resources general manager iron ore, investment services, has forecast “a significant increase in iron exports to China in the short term”, he was hesitant to put a number on it. However, other industry and government sources point to WA supplying up to 60 per cent of China’s needs by the end of the decade.
The numbers support this potential. WA has the third largest defined iron ore reserve base in the world – 36.4 billion tonnes from a global reserve of 230 billion tonnes – within which sits current marketable resources of 17.5 billion tonnes.
And there is massive potential for more in the Pilbara and emerging relatively unexplored Mid-West region, Australia’s second largest iron ore region centred on Geraldton, where a new nearby deepwater port at Oakajee could be up and running in five years.
WA’s most powerful advantage with China and its other north-east Asian customers is in its price competitiveness. Figures from the Department of Industry and Resources show an “equalised” delivery price, based on 2004 delivered prices, averaged $US45 a tonne, compared with $US60.45/t from South Africa, $US59/t from Brazil and $US81.25/t from India.
Home-front impediments to fully capitalising on the current iron ore demand include the lack of exploration in the recent past, rising costs, skilled labour shortages, a lack of infra structure, and government red tape.
Historically, the exploration dollars spent have been pretty low – currently just more than $60 million a year compared with a total resources exploration budget of $1 billion and a similar petroleum exploration budget – which goes a long way to understanding why WA’s big producers are now scrambling to catch up.
At the recent Asia Pacific Iron Ore conference in Perth, Mr Carpenter acknowledged the lack of infrastructure, particularly in the Mid-West region.
“We are just at the beginning of what needs to be done,” Mr Carpenter said with reference to recent expansion at the Geraldton Port, with more to come.
The state government has also given tacit support for the Oakajee deepwater port, 25 kilometres north of Geraldton, when the contracts are on the table.
Mining approval and development processes were recently centralised through Mr Carpenter’s department in an attempt to streamline development and cut through the bureaucracy, a move the minister acknowledged required a change of attitude.
He is also pushing for an easing of migration controls.
“Australian migration policy settings are too restrictive and too narrow at the moment,” Mr Carpenter told WA Business News.
“There is scope for greatly increased migration into Australia at this time.
“With China showing good strong economic growth into the next decade and India a similar growth story in the months ahead, this is the greatest period of expansion the WA iron ore industry has ever seen.”
