29/06/2004 - 22:00

Rio Tinto weighs up its options at Argyle

29/06/2004 - 22:00

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 Rio Tinto’s plans for the future of its giant Argyle mining operations in Western Australia’s remote East Kimberley region have attracted the attention of a range of interested parties, from governments to the local community and even buyers overseas.Argyle was due to wind-up mining at its op

 

Rio Tinto’s plans for the future of its giant Argyle mining operations in Western Australia’s remote East Kimberley region have attracted the attention of a range of interested parties, from governments to the local community and even buyers overseas.

Argyle was due to wind-up mining at its open pit in 2007, however the miner is currently deciding whether to significantly extend the lucrative mining operations by going under-ground. A decision is expected in mid 2005.

Rio Tinto regularly meets with government officials to discuss Argyle, with both sides weighing up the options with a view to maximising their benefits.

The flow-on benefits from a decision to proceed underground, Rio Tinto argues, are significant.

The move is expected to positively impact on State and Federal coffers, the economic and social fabric of the Kimberley region, and even the worldwide diamond industry.

Argyle supplies an annual average of 20 per cent of the world’s total rough diamond production. India is a significant player in the market, with large numbers of people employed in its diamond cutting industry.

At this stage Rio Tinto is undertaking a $70 million feasibility study on the underground expansion, which includes a 2.2-kilometre exploratory decline.

If mining proceeds, which could cost up to $800 million, Argyle’s life could be extended by up to 20 years at production levels slightly lower than current levels of about 31 million carats a year.

However, Argyle has already warned of threats to the expansion, which is where government fits in.

While Rio Tinto says an Australian dollar valued near the US75-cent levels witnessed earlier this year, as well as time delays, cast doubt on the project’s viability, the miner is also examining other factors.

Treading cautiously, it is also analysing the way the WA Government collects royalties from Argyle each year and weighing this up against the regional benefits of the mine.

Due to the agreement between Rio Tinto and the State over Argyle, an increased profit rate at the mine forces a royalty equation calculated at 22 per cent of Argyle’s profit rate. However, if the profit rate decreases, a lower 7.5 per cent royalty calculated from the mine head value is used.

Basically, this means that as Argyle’s costs have fallen in recent years, profit has risen, which has triggered the higher royalty equation. This may be why Rio Tinto is now weighing up the argument for royalty relief.

The State is also currently facing the possibility of a scale back of another major resource project that had promised to bring significant regional benefits to WA’s south.

BHPB’s $1.9 billion Ravensthorpe nickel project was to feature a locally housed workforce rather than a fly-in-fly-out one, but the Federal Government’s decision not to fund supporting infrastructure seems to have scuttled BHPB’s plans at this stage.

One line of thinking suggests the State could increase its annual Federal budgetary allocation to make up lost revenue from mining activities, so Argyle may not be such a great loss.

But for the moment, Rio Tinto looks serious about adding value to the East Kimberley region.

It has implemented a localisation program whereby it hopes to have 80 per cent of the workforce eventually living locally, dramatically reducing the fly-in-fly-out system.

In the past three years the locally-based workforce has doubled to about 40 per cent, of which half is Indigenous.

Kununurra Chamber of Industry and Commerce president Frank Rodriguez agrees, saying the mining company and the Government need to work together to secure the best possible outcome for the region.

“I think the Government and the mining companies have to work together to help economies stay together in places like Kununurra, and if indirectly there were ways of doing that well then, yeah, sure, I think we would only be to happy to go down that track,” he said.

Mr Rodriguez said a void had been left in the town following the onset of Argyle’s fly-in-fly-out workforce system 10 years ago, but things were seemed to be changing.

“Now things are starting to look up again and the fact that Argyle want to come back into Kununurra and employ people locally, then the possibilities start to grow,” he told WA Business News.

“It is viable for business to expand.”

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