17/12/2009 - 00:00

Iron ore players forge new trade routes

17/12/2009 - 00:00


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COMETH the hour, cometh the man, as the saying goes.And for Western Australia’s key export industry, the hour certainly came early in 2009, and with it a handful of key executives took the opportunity to make their mark.

Iron ore players forge new trade routes

COMETH the hour, cometh the man, as the saying goes.

And for Western Australia’s key export industry, the hour certainly came early in 2009, and with it a handful of key executives took the opportunity to make their mark.

For the past five years, WA’s economic growth has been in large part driven by the iron ore industry as it steadily increased its lead as the state’s biggest export earner.

So when the global financial crisis peaked in October last year, it was the iron ore sector that first felt the impact.

Without warning, boatloads of iron ore were being turned away from Chinese ports as buyers started reneging on supply contracts.

In such trying circumstances, reputations are won and lost.

And there was no bigger winner in 2009 than Rio Tinto Iron Ore chief Sam Walsh.

A steady hand at the wheel when the crisis hit hardest, Mr Walsh coolly recalibrated Rio’s Pilbara business by cutting output 10 per cent and deferring non-critical expansion work.

The move not only helped stabilise Rio’s then-perilous financial position, it helped inject some order back into the iron ore market.

Behind the scenes, his iron ore marketing team also hardened their negotiations with customers who had been seeking to take advantage of Rio’s weakened position.

Iron ore shipments were increasingly directed to whichever customer was prepared to pay the best price, maximising competition for cargoes and optimising revenue in a tough and volatile market.

Mr Walsh also played a key role in hatching the coup of the year – the proposed $116 billion Pilbara iron ore joint venture with BHP – with his lower-profile BHP counterpart, Ian Ashby.

The deal was a masterstroke, which both killed off an increasingly unpalatable $24 billion tie-up with China’s Chinalco and promised to deliver most of the gains sought by BHP with its aborted takeover offer of 2008.

With the position of Rio chief executive Tom Albanese looking increasingly untenable (as an architect of the Chinalco deal), Mr Walsh was virtually anointed his heir-apparent in June when the iron ore deal was announced and he was elevated to Rio’s board.

Since then, he has become one of Rio’s most public advocates on a range of national issues, including climate change, emissions trading, industrial relations, Sino-Australian relations and indigenous employment.

Mr Walsh’s long-time sparring partner, Fortescue Metals Group chief Andrew Forrest, also dominated headlines in 2009.

In April, it was his five-week trial at the hands of the Australian Securities and Investments Commission over FMG’s disclosure of three Chinese deals in 2004 that put him on centre stage.

ASIC was seeking to have Mr Forrest banned as a company director and fined millions for claiming the deals amounted to binding contracts to back his Pilbara business. The following year, the Chinese withdrew and denied the agreements were binding.

While ASIC claimed Fortescue and Mr Forrest knew the claims were misleading, Mr Forrest fired back by arguing the Chinese had used the agreements as leverage in an attempt to secure control of Fortescue on the cheap.

Though the case provided plenty of titillation, few observers were able to declare a clear winner and the judge is yet to hand down his ruling. If it loses, ASIC will be under enormous pressure to justify the millions of dollars and thousands of hours spent pursuing a company that has become one of WA’s greatest success stories.

Meanwhile, Mr Forrest continued his five-year harassment of BHP and Rio over access to Pilbara rail infrastructure at the same time as providing actual access to his own smaller rivals – for a price.

Having already facilitated Atlas Iron’s first exports through its Port Hedland port, Fortescue gave fellow junior BC Iron the chance to join the ranks of producers by taking a 50 per cent stake in its Nullagine iron ore venture in June.

Trial mining has already been completed and first commercial production is expected by the end of next year, offsetting the initial pain of the high price paid by BC shareholders.

Against this backdrop, Rio and BHP have been forced to justify their 40-year-old case against infrastructure sharing to the Australian Competition Tribunal during the past two months.

If the tribunal rules in Mr Forrest’s favour, it could be his greatest achievement to date.

This year was also one in which Atlas chief David Flanagan firmly established himself as a likely successor to Mr Forrest as champion of the growing independent iron ore sector.

Though Atlas shipped its first ore from the Pardoo mine only last December, it already plans to start production at two more mines – Wodgina and Abydos – next year, and has led consolidation in the Pilbara by buying aspiring miner Warwick Resources.

For the emerging Mid West iron ore sector, 2009 was also a watershed.

Last month, iron ore veteran George Jones crowned a decorated career by turning the first sod at Gindalbie Metals $1.9 billion Karara magnetite joint venture with China’s AnSteel group.

Meanwhile, the signing of a state development agreement for the $4 billion Oakajee port and rail project in March finally opened the door for the development of a world-class iron ore industry in the region.



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