Sharp increases in project costs have done nothing to deter the growing number of companies aspiring to become iron ore miners in Western Australia.
Sharp increases in project costs have done nothing to deter the growing number of companies aspiring to become iron ore miners in Western Australia.
Eight companies new to the industry are hoping to develop iron ore projects worth $12.4 billion, while more than half a dozen other companies are exploring iron ore tenements they hope will sustain future mining operations.
To put these ambitious plans in perspective, WA currently has just two iron ore miners with large-scale operations – Rio Tinto and BHP Billiton.
Andrew Forrest’s Fortescue Metals Group has defied the sceptics and commenced work on its Pilbara iron ore and infrastructure project, which will make it the third high-volume producer with annual output of 45 million tonnes.
There is no shortage of companies hoping to become large-scale producers.
However, it is notable that WA’s two established mid-tier producers, Portman and Mt Gibson Iron, are not among them.
Portman, which is majority-owned by US company Cleveland-Cliffs, has already discovered how difficult and costly any expansion can be in the current overheated conditions.
It recently completed an expansion of its Koolyanobbing mine, to lift output to eight million tonnes.
The project was meant to cost $65 million but ended up costing $87 million and was more than six months late.
Portman managing director Richard Mehan spelt out the current difficulties when he said “cost pressures remain extremely strong”.
“Salaries, fuel, consumables and construction costs are of particular concern,” Mr Mehan said.
In addition, he said a lack of skilled workers and high staff turnover were hindering Portman’s ability to fully utilise its infrastructure.
In light of these challenges, Cleveland-Cliffs president Joseph Carraba told the recent Diggers & Dealers conference that planned magnetite projects in WA were unlikely to proceed.
“It’s just going to be a very difficult environment to get these big projects over the line,” Mr Carraba said.
Mt Gibson Iron sold its interest in the $715 million Extension Hill project after concluding it would need to undertake a large capital raising and would have had “unacceptably high levels of debt”.
It will focus instead on its existing hematite mine and consider a second, mid-sized hematite mine.
Another company taking a judicious approach is Aztec Resources, currently the subject of a Mt Gibson takeover offer.
Aztec is developing BHP’s old Koolan Island hematite mine, which will produce 4mt per year.
The skills and cost pressures affecting project developers are unlikely to be quickly relieved.
BHP Billiton is studying its rapid growth project 4, which would lift the capacity of its Pilbara operations to 152mt at an estimated cost of $2.1 billion.
Rio Tinto has not disclosed its future plans, but assuming the market remains strong, it is likely to proceed with another expansion project.
Aspiring producers such as Midwest Corporation, Murchison Metals and Gindalbie Metals have formed alliances or joint ventures with large Asian steel producers, which they hope will substantially boost their prospects.
The large projects proposed by these companies are predicated on the development of new port and rail infrastructure in the Mid-West.
The generally agreed long-term plan is to develop a new port at Oakajee, north of Geraldton, and associated rail lines at a cost of about $2 billion, but it remains unclear when, or even if, this port will be built.
In the meantime, there is increasing focus on other port options.
Gindalbie Metals, for instance, announced in July that it had revised its plans and was proposing to export its concentrate and pellets through Geraldton “to provide maximum certainty for its development and shipment plans”.
In a similar vein, Golden West Resources, which is aiming to develop the Wiluna iron ore deposit near Leonora, has revised its strategy and is now basing its plans on using the port at Esperance.
The Geraldton Port Authority is investing $35 million in a new shiploader to increase capacity, but this will go only a small way to meeting expected demand.
The aspiring producers in the Pilbara face a different situation.
China’s CITIC Pacific emerged from left field earlier this year and is one of the companies more likely to get its project off the ground.
CITIC expects to spend $3.3 billion to develop its iron ore deposits and building a new port at Cape Preston, south of Karratha.
CITIC signaled its intentions when it signed a $285 million deal last month with Queensland business executive Clive Palmer’s Mineralogy.
Other companies with deposits close to the coast and existing infrastructure include Cape Lambert Iron Ore, near Karratha, and Atlas Iron, near Port Hedland.
Iron Ore Holdings, which has three tenements in the Pilbara, has taken a different approach to solving its infrastructure needs.
It has commenced discussions with BHP over two options – selling ore at the ‘mine gate’ or negotiating an agreement for BHP to haul its ore using BHP rolling stock. This contrasts with FMG’s proposal to use its rolling stock on BHP’s rail line.
