02/09/2010 - 00:00

Split emerges as iron ore juggernaut rolls on

02/09/2010 - 00:00

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WHEN Kevin Rudd announced his plans for a super profits tax on the mining industry in May, local iron ore miners immediately feared it would make financing new projects impossible.

WHEN Kevin Rudd announced his plans for a super profits tax on the mining industry in May, local iron ore miners immediately feared it would make financing new projects impossible.

Fortescue Metals founder Andrew Forrest was the most dramatic, saying the tax had forced the company to cancel its proposed Solomon and Western Hub iron ore mines in the Pilbara, scotching $17 billion in planned investment and 30,000 associated jobs.

A month later, Mr Rudd was ousted as prime minister and Julia Gillard struck a deal with mining giants BHP Billiton, Rio Tinto and Xstrata to apply a watered-down version of the tax only on coal and iron ore.

Yet WA iron ore miners – led by Mr Forrest and Atlas Iron chief David Flanagan – argued the revised tax was even more damaging because it selectively targeted their industry and favoured cash-rich mining giants over emerging companies, such as Fortescue and Atlas, which could not access cheap development capital.

Three months on, the future of the proposed tax remains as uncertain as the next federal government.

At face value, that uncertainty does not yet appear to have caused a major slowdown in iron ore development.

According to the annual WA Business News survey of major resource projects, there are currently 12 major iron ore developments collectively worth $20 billion actively under construction in the state.

Behind them, almost 20 other advanced projects notionally worth $70 billion are awaiting final funding and development approvals.

However, a glance at the list of projects under way reveals Mr Forrest and Mr Flanagan have a point.

Overwhelmingly, the established iron ore arms of BHP and Rio Tinto are developing the projects under way.

The largest single project under way is BHP’s $6.3 billion Rapid Growth Project 5, which started in late 2008 and will boost BHP’s Pilbara capacity by 50 million tonnes to 205 million tonnes per annum by late next year.

In addition, BHP in January approved $2.5 billion in pre-development spending for its follow-up RGP6 expansion intended to add another 35mtpa by late 2013.

Meanwhile, Rio Tinto has declared full steam ahead for its plan to boost its Pilbara capacity by over 50 per cent to 330mtpa by mid 2016.

It has pushed the button of a string of expansion initiatives in recent months, including this week’s approval of the $1.8 billion Hope Downs 4 mine and last month’s approval of $1.2 billion in preparatory work needed before the Cape Lambert port can be expanded further.

Beyond the majors’ expansion programs, all other major iron ore projects already under way typically commenced long before Labor announced its tax plan.

Chinese controlled Citic Pacific’s $5.2 billion Sino Iron magnetite project at Cape Preston is the most advanced, though first concentrate exports from the 27mtpa operation have slipped out to the first half of next year due to slower than expected construction progress.

Meanwhile, the $1.9 billion Karara magnetite project being developed by China’s AnSteel and Gindalbie Metals in the Mid West has made solid progress over the last year, and is on track to start production in the middle of next year.

Ironically, the only other new player to start work on a significant new investment in recent months is Fortescue, which has begun the $500 million stage two expansion of its Chichester Range operations to boost capacity from 40mt to 55mtpa by mid 2011.

In comparison, the $70 billion of projects still awaiting final go-ahead are almost exclusively the preserve of the independents and newcomers.

Topping the list is Clive Palmer’s proposed $20 billion Mineralogy expansion project stages 3-5 at Cape Preston. The project encapsulates an expansion of the existing Sino Iron project, and the subsequent development of two standalone Mineralogy projects next door by 2017, which will jointly produce an extra 65mtpa of magnetite concentrate.

The WA Environmental Protection Authority is currently assessing Mineralogy’s 330-page public environmental review, though Mr Palmer has already warned the project is unlikely to proceed if the proposed iron ore tax is implemented.

Meanwhile, Fortescue has set a loose 2012 target for first production from its still unfunded $10 billion Solomon Hub operations, and Aquila Resources is targeting a 2014 start for its $5.7 billion West Pilbara Iron project.

Oakajee Port & Rail also remains confident that the current political impasse will not affect the federal government’s $338 million commitment to the $4 billion Oakajee project and that it too can be developed by 2014.

Any slippage at Oakajee will also affect other major Mid West iron ore projects that are in final feasibility and remain dependent on the port’s completion, notably Crosslands Resources $2 billion Jack Hills mine, Sinosteel’s flagship Weld Range mine, and the planned threefold expansion of the Karara project.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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