Total spending on the expansion of Western Australia’s booming iron ore industry over the past five years has reached $17 billion following BHP Billiton’s commitment to another major upgrade of its Pilbara operations.
Total spending on the expansion of Western Australia’s booming iron ore industry over the past five years has reached $17 billion following BHP Billiton’s commitment to another major upgrade of its Pilbara operations.
The rapid expansion of the industry has been unprecedented, with projects currently under way or committed to lift annual output to 420 million tonnes by 2010, more than double its production capacity in 2002.
With the big players, BHP and Rio Tinto, planning further expansion, and Chinese steel mills backing a raft of junior players, the industry’s rapid growth is likely to continue.
BHP announced last week it has approved its $2.3 billion Rapid Growth Project 4, which will expand the capacity of its iron ore operations by a further 20 per cent to 155mt.
The BHP move was one of several major developments in the iron ore industry, which has boomed on the back of soaring Chinese demand.
Andrew Forrest’s Fortescue Metals Group this week signed a 10-year off-take agreement with big Chinese steel producer Baosteel to purchase up to 20mt of iron ore per annum.
The two companies are also considering a joint venture to develop the Pilbara’s massive magnetite iron ore deposits, which to date have largely been ignored in favour of the higher quality hematite ores.
Some of the junior companies aspiring to get into the industry have also reported major developments.
Tony Sage’s Cape Lambert Iron Ore has agreed to sell a 70 per cent stake in its namesake project to Chinese investor Best Decade for $250 million, while Aurox Resources has signed a memorandum of understanding with an unnamed resources company to support development of its Balla Balla project.
Australasian Resources has gained the backing of Chinese steel producer Shougang, which has agreed to invest $56 million in the company.
Shougang has also pledged, subject to various studies, to fund the development of Australasian’s Balmoral South deposit at an estimated cost of $2.6 billion.
To put the current boom in perspective, it is worth going back to 2002 when BHP kicked off the industry’s expansion by proceeding with its Mining Area C and port expansion projects.
Those projects were designed to lift capacity from 67 million tonnes per annum to 81mtpa and provide the foundation for expansion to 90mtpa by 2011.
In practice, BHP has accelerated its expansion and already has capacity of 109mtpa.
In the past five years the company has committed to spend $6.5 billion in the Pilbara, and is unlikely to stop there.
BHP iron ore president Ian Ashby said a range of options to expand capacity beyond 155mt was being evaluated.
“We are committed to creating further value-adding options for the business and providing the next phase of growth opportunities beyond our recent expansion projects,” he said.
Coincidentally, WA’s second big iron ore producer, Rio Tinto, has also committed to spend just over $6.5 billion expanding its Pilbara operations.
Rio’s expansion will lift its capacity to 220mt per year, confirming its status as the region’s biggest producer.
Fortescue Metals Group is due to become the third iron ore producer in the Pilbara when shipments from its $3.7 billion project commence next year.
Fortescue is targeting initial production of 45mt but has plans to increase output to 110 million tonnes.
Outside of the big three players, spending in the iron ore industry has been relatively modest.
Portman and Mt Gibson Iron have invested about $150 million expanding their operations, while new producers Aztec Resources, Murchison Metals and Midwest Corporation have spent about $200 million establishing their mines.
Far more significant is the massive investment planned by new or aspiring producers such as Australasian Resources, CITIC Pacific and Gindalbie Metals.
