It’s up, up and away as expansion hits top gear

Across the Pilbara, in the Mid West, Yilgarn and Great Southern, WA’s iron ore sector is planning substantial growth.

IRON ore expansion and development in Western Australia has moved into overdrive as miners aim to capitalise on strong demand from emerging economies.

The state is anticipating the arrival of several of the world’s largest greenfield or expansion projects from the Pilbara region in the next few years.

Fortescue Metals Group is expected to add at least 80 million tonnes per annum to global supply next year when the Solomon Hub project and Chichester Hub expansion have been commissioned.

Hancock Prospecting is planning to provide a further 55mt of capacity in 2014 once its development at Roy Hill is completed.

Not to be outdone, BHP Billiton’s Rapid Growth project will supply a further 35mt in 2014 if the development goes to plan.

Then there’s Aquila Resources and Citic Pacific, which, setbacks aside, are expecting capacity of 30mt and 24mt respectively from their West Pilbara and Sino Iron projects.

Finally, Rio Tint has outlined the largest expansion of any company – to 353mt/year – once its new mines and infrastructure come on board.

Iron ore giants

Mining giants Rio Tinto and BHP are involved in a competitive expansion race in the Pilbara.

Rio Tinto is the larger producer of the two in the region and has approved the more ambitious expansion plan to this point.

The company already owns 14 mines, 1,500 kilometres of rail, three port terminals, nine berths and three power stations in the Pilbara.

To grow on that, the company will increase capacity to 230mt/year this quarter before embarking on the next stage to 283mt/year. Rio Tinto’s end target, pending board approval, is to reach 353mt/year. 

Rio Tinto is planning investment of more than $US18 billion over the next five years, and the company has a long-term outlook in the Pilbara extending to 2069.

“The program remains on track and we are bringing new iron ore production on stream at a time when demand from Asian markets is forecast to grow strongly, while industry supply growth remains constrained,” Rio Tinto Iron Ore chief executive Sam Walsh said in a statement earlier this year.

The planned expenditure includes $US2.2 billion to extend the life of the Nammuldi mine by 14 years by the second half of 2013, increasing capacity to 283mt/year.

A further $US1.2 billion has been approved for early works on the planned expansion of the Cape Lambert port and rail facilities to 353mt/year.

BHP has finalised funding for expansion in the Pilbara to 240mt/year, but its ultimate goal beyond this decade is to scale the outer harbour at Port Hedland and deliver capacity of 450mt/year.

To reach its first aim, BHP will fully utilise its inner-harbour capacity at Port Hedland before launching construction of the outer harbour.

The company is expecting new production from its growth mines – Jindi, South Flank and Marillana – to help fill the increased capacity.

In outlining the first 100mt/year phase of the outer harbour, BHP said the construction of offshore infrastructure would include a four-kilometre jetty, four-berth wharf, a 32km departure channel and two ship loaders.

Onshore, phase one infrastructure would include stockyards, a rail spur and two car dumpers.

BHP’s iron ore president, Ian Ashby, said the company was on track to achieve the $US10 billion expansion target, and there were no plans to slow the development despite uncertainty surrounding the iron ore sector.

Meanwhile, Fortescue Metals Group, which says it is on schedule to complete expansion in the Pilbara to 155mt/year, surprised the sector last week by saying it was also considering an outer harbour development at Port Hedland instead of moving ahead with the proposed port at Anketell Point.

The company told media that Port Hedland had emerged as an option given the port’s proximity to its mines, and the potential of it proving more beneficial than the Anketell alternative.

FMG has had little trouble convincing the market of its 155mt/year expansion plans after earlier this month raising $2 billion of unsecured notes in an offering that was five times oversubscribed.

Chief executive officer Nev Power said the expansion would be delivered next year on the back of securing this funding. 

“This raising and the strength in the response that we’ve had highlight the strength of Fortescue in terms of its reputation in the finance markets and the value it represents,” Mr Power said.

Local successes

WA’s smaller iron ore producers are also growing their operations, while keeping track of possible mergers or acquisitions to complement their portfolio.

Atlas Iron has grown from an exploration company to its current capacity of 6mt/year, and is now aggressively targeting 15mt/year by 2015 and 46mt/year by 2017.

Underpinning this expansion is the development of the Mt Dove, Abydos and Mt Webber projects into production over the next 18 months, adding to the already producing Pardoo and Wodgina operations.

Atlas chief commercial officer Mark Hancock, speaking at the Global Iron Ore & Steel Conference in Perth last week, said the company was well-placed to achieve these targets through cash flow from the existing mines and a $400 million bank balance.

“Bringing on three mines, even though they are modestly sized, is a challenging exercise,” Mr Hancock said.

“But we believe what we have learnt at Pardoo and Wodgina positions us very well to perform that task.”

Much of Atlas’ recent focus has shifted towards securing a rail solution from its current and future mines to Port Hedland.

Mr Hancock said synergies with Hancock Prospecting’s nearby Roy Hill mine had been identified and the two parties were discussing the potential of working together to establish a joint rail network. 

BC Iron, unlike other fledgling iron ore producers in the Pilbara, has cemented rail access in the region through a joint venture with FMG.

The company, which moved from drilling its first hole at the Nullagine project to shipping first ore in less than four years, is now mining at 3mt/year, and is on course to expand that output capacity to 5mt/year later this year.

Managing director Mike Young said the relationships BC Iron had built with FMG, government and indigenous groups would be the foundation of the company’s growth.

“We had a five-year plan and we are sticking to it … so we are at that crossroad now to grow the company,” Mr Young told WA Business News.

“To extend our mine life with other proximal deposits is a priority, and another priority is WA in general, where we have a good understanding.”

BC Iron has established a secondary focus, which could take the company offshore.

After a recent visit to North America, Mr Young said the company had identified potential acquisition targets outside of WA.

“With the rest of the world we are basically looking at Canada, South America and West Africa,” Mr Young said.

The next producers

Despite a highly publicised legal battle between owner Gina Rinehart and three of her children over control of a family trust, Hancock Prospecting has this year been working towards raising equity to fund development of the Roy Hill project.

The privately held company is said to be targeting a 30 per cent sale of the project, which has been estimated to cost between $7 billion and 10 billion for development.

Hancock has already reportedly agreed to sell 15 per cent of the project to South Korea’s Posco after the Asian steel-maker indicated earlier this year it was planning a deal with the company to raise its interest from 3.75 per cent.

Media reports have also suggested Hancock is close to a transaction with Japan’s Marubeni over the sale of a further 12.5 per cent in the project. 

Barry Fitzgerald, Hancock’s general manager of carbon steel materials, told the Global Iron Ore & Steel Conference the company was targeting a 30 per cent sale, but added there would be some flexibility depending on the circumstances at the time.

Roy Hill is located about 300km south of Port Hedland, and has an indicated and inferred resource of more than 2.4 billion metric tonnes of iron ore. 

Citic Pacific continues to advance its embattled Sino Iron magnetite project despite ongoing delays and the threat of more cost blowouts (see Bystander page 30). 

Originally scheduled for completion in late 2010, the cost to complete Sino Iron has doubled to more than $US6 billion due to increasing labour and equipment costs, and the high Australian dollar.

Executive director Malcolm Northey said at the Global Iron Ore & Steel Conference that Citic Pacific had no regrets over the size of the development in hindsight of the problems it had faced.

The Sino Iron project, which is being developed 100km south-west of Karratha, is the largest magnetite project underway in Australia.

“Magnetite is such that you have got to have these economies of scale,” Mr Northey said.

“If you can’t get mine and operating costs right down it will be difficult to make any magnetite project work.”

Australian Premium Iron (API), the joint venture between ASX-listed Aquila Resources and American Metals and Coal International, is expected to deliver a definitive feasibility study for the West Pilbara project later this year.

The joint venture, which has established a 1.22 billion tonne resource across the 9,000sq km project area, plans to start construction at West Pilbara in the first quarter of next year.

It is envisaged the completed project will produce 30mt/year of West Pilbara fines and have the product shipped through the proposed port development at Anketell Point.

“We are a low-cost producer and we think we have got a reasonable margin on the long-term price forecasts as it stands,” API project director Kevin Watters said at the Global Iron Ore & Steel Conference.

“It’s a matter of looking at a 15-year life of mine and our numbers are based on that.” 

Emerging provinces

Mitsubishi Corp’s takeover of control of the Oakajee Port & Rail project in the state’s Mid West looks to have breathed new life into the troubled venture.

After a tumultuous 2011, Oakajee has avoided the spotlight since the Japanese company assumed power over the $6 billion project through a $325 million acquisition of Murchison Metals’ 50 per cent stake.

Crosslands Resources managing director Andrew Caruso, speaking at the Global Iron ore & Steel Conference, said Mitsubishi’s buy-out of Murchison’s share had other companies reconsidering the future of their projects.

This could mean a restart to the $2 billion Weld Range iron ore joint venture between Murchison and Sinosteel Midwest isn’t far away after it was suspended in June last year by the Chinese company.

Sinosteel decided to shelve the project due to the ongoing uncertainty surrounding the viability of the Oakajee venture.

Mitsubishi’s takeover of ownership at Oakajee was widely viewed as a positive move for Oakajee, a project that has been strongly backed by the state’s premier, Colin Barnett.

The project has been earmarked to potentially service a number of mines in the region, including Crosslands’ Jack Hills mine and the Karara joint venture between Gindalbie Metals and China’s Ansteel.

East of the Mid West’s emerging iron ore province, Legacy Iron ore is exploring in the Yilgarn at its Mt Bevan magnetite joint venture prospect with Hawthorn Resources.

Legacy chief executive officer John Hebenton believes the company and Mt Bevan have “flown under the radar” in relation to the rest of the state’s sector.

The company has not avoided foreign attention however, with its top shareholder being state-owned Indian iron ore producer NMDC. 

Legacy has already established a 1.6 billion tonne JORC resource at Mt Bevan and says that figure could be substantially improved at depth following further drilling.

Mt Bevan is located close to rail, road and would utilise the Esperance port once the project moves into production, forecast to be in 2017 or 2018.

“We’ve all heard about the expenses involved in developing a magnetite project and NMDC provides security for us as we move forward,” Mr Hebenton told the Perth conference last week.

Legacy also owns two early stage iron ore projects in the Pilbara and a gold asset in the Goldfields.

Also in the Yilgarn, US company Cliffs Natural Resources’ Koolyanobbing mine near Southern Cross is moving towards increasing capacity from 8.5mt/year to 11mt/year this year.

The company, which ships its direct shipping ore product from the mine through Esperance, expects the expansion to be complete in the second half of 2012.

Yilgarn is shaping as another emerging iron ore province in WA, with Mineral Resources also commencing production from its Carina DSO project during the first half of the 2012 financial year.

In addition to these companies, Cazaly Resources, Golden West Resources, Mindax, Polaris Metals, Meteoric Resources and Radar Iron are companies with assets in the region.

In the Great Southern, Grange Resources is nearing completion of the definitive feasibility study for its 70 per cent owned Southdown magnetite joint venture with Japan’s Sojitz.

The company, which produces iron ore pellets from its other asset in Tasmania, has increased the resource at Southdown to almost 700mt of premium quality magnetite.

Grange is targeting 10mt/year of concentrate from the mine once developed to produce high-quality pellets for 19 to 40 years.

The junior players

Outside of the massive expansion underway, WA’s junior iron ore miners are still finding their niche, especially in the realm of mergers and acquisitions.

Foreign investors and local companies such as Atlas have proven in recent years there is always an appetite to build resources through the purchase of quality, early stage assets.

Atlas has led the way with this strategy, most recently with last year’s takeover of WA company FerrAus, and this week through an agreement to buy-out joint venture partner Haoma Mining’s share in the Mt Webber project.

Junior Iron Ore Holdings has prospered through the sale of projects in the Pilbara region to bigger companies intent on developing them further.

The company this month finalised the sale of its Phil’s Creek, Lamb Creek and Yandicoogina Creek tenements to Mineral Resources for $42 million.

IOH’s previous deals included the sale last year of its Koodaideri South tenement in the Pilbara to Rio Tinto for $32 million.