25/06/2008 - 22:00

Myths cloud iron ore debate

25/06/2008 - 22:00

Bookmark

Save articles for future reference.

The debate over development of Western Australia's iron ore industry seems to have given rise to a number of myths that are distorting informed discussion.

Myths cloud iron ore debate

The debate over development of Western Australia's iron ore industry seems to have given rise to a number of myths that are distorting informed discussion.

The position of the industry majors, Rio Tinto and BHP Billiton, has come under attack on two fronts.

Cazaly Resources has laid claim to the giant Rhodes Ridge deposit, arguing that Rio Tinto and its partners have not met their contractual commitments.

In reply, Rio pointed out that it has either spent or agreed to spend $US8.6 billion on iron ore expansion projects since 2003. BHP Billiton's total spend would not be far different.

That demonstrates a fulsome commitment to expansion of the industry.

Separately, the National Competition Council said it was inclined to 'declare' Rio's and BHP's railways open to third parties.

The NCC ruling was the latest instalment in a saga kicked off four years ago by Fortescue Metals Group, which argued that it needed access to BHP's railway to underpin development of its iron ore.

Indeed, the iron ore juniors as a group have argued that rail access deals are crucial to their plans.

However, several companies have found alternative solutions.

FMG has built its own railway (and port) and recently commenced exporting to China, Atlas Iron will shortly start trucking ore to a public berth at Port Hedland, Aurox plans to build a slurry pipeline to the port, and Australasian Resources expects to use the port being developed by China's CP Mining, south of Dampier.

Such options are not feasible for all juniors, but nor is rail access the only solution.

Third-party access means that new miners would be able to put their own locomotives and rail wagons on BHP's or Rio's rail tracks.

The majors argue that their rail lines are already fully utilised, that third-party access would disrupt their operations, and that it isn't realistic to calculate a commercial price for such a service.

The majors say they are also concerned about the impact of new miners' using rolling stock with different specifications, and possibly of poorer quality.

This compatibility issue is likely to be exaggerated by Rio's radical plan to introduce driverless ore trains, supported by a sophisticated system of electronic monitors and controls.

Third-party haulage is a compromise; it would enable junior miners to negotiate a haulage deal with Rio and BHP, using the majors' rolling stock.

It would only work if the junior was able to get the ore to the rail siding, and if it had appropriate port infrastructure in place.

BHP has stated that it supports third-party haulage in principle, while Rio has been cool on the idea, and is vigorously opposed to a mandated haulage regime.

Mine gate sales provide a further option that takes away some of the profit potential for juniors but seems far more pragmatic.

The junior miner would dig up the ore and truck it to a rail siding, for sale to one of the majors, which would be able to blend the ore with its own supplies.

Juniors won't change the world this way, but they should have a relatively low risk, profitable mining operation.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options