Iron ore mining

Australia’s production and exports of iron ore are both expected to continue rising strongly.

The demand for iron ore is expected to continue expanding strongly during the early years of the outlook period as steel production, particularly in China, continues to boom.

Australia is well placed to take advantage of growth in iron ore demand, since it is, together with Brazil, the lowest-cost producer.

By 2011-12, Australia’s iron ore production and exports are expected to be about 360 million tonnes and 348 million tonnes, respectively.

The increased output will come from both new operations and expansions at existing mines.

A number of iron ore projects will be expanded over the next few years.

BHP Billiton is lifting output at a number of mines beyond the original anticipated capacity,

Rio Tinto has announced a range of mine expansions and new developments, including its Nammuldi deposit, while Portman Mining is increasing the capacity of its Koolyanobbing operation to 8 million tonnes. Australia’s newest iron ore miner, Mount Gibson Iron Ore, will also contribute to the growth from its Tallering Peak mine.

Port and rail infrastructure is also being expanded to accommodate higher output and exports. In particular, an expansion of Hammersley Iron’s port at Parker Point near Dampier is expected to lift iron ore handling capacity from 74 million tonnes per year to 116 million tonnes per year.

Iron ore prices, which rose extremely strongly in both 2005-06 and 2006-07, are expected to trend lower during the outlook period, not least in response to large increases in supply.

The growth in China’s steel production is also expected to moderate after the Beijing Olympics in 2008, suggesting that demand pressures will also ease.

Softer prices in turn point to moderating growth in industry revenue over the course of the outlook period. Real industry revenue is expected to continue expanding in 2007-08 and 2008-09 on the back of expanding production and exports, and in response to a weaker Australian dollar. However, beyond that time, industry performance is expected to decline.

Nonetheless, real revenue is expected to rise at an average annual rate of about 2% over the five years ending in 2011-12 and it must be remembered that this subdued performance comes after a period of extremely strong growth.

Japan was overtaken by China as the largest purchaser of Australian iron ore in 2004-05. It is expected to retain this position and also to become increasingly important as an investor in the industry.

A number of projects which aim to further process iron ore within Australia have from time to time been under consideration, but are unlikely to proceed during the outlook period.

Austeel Ltd had plans for a $3 billion, 20 million tonne iron ore mine and associated direct reduction plant near Karratha in Western Australia.

Similarly, South Australian Steel and Energy (SASE) had plans for the construction of a new pig iron smelter in Whyalla South Australia.

A $16 million demonstration plant produced its first pig iron in late 2000, and SASE (90% owned by AuIron Energy) hoped to build a full-scale plant based on the pilot operation. However, funding difficulties, compounded by a fire at the demonstration plant in April 2002, led to the project being shelved in mid 2002. AuIron’s subsequent search for an investment partner for the $1.2 billion project (a 2.5 million tonne smelter, a mine and a power station) proved unsuccessful.

In late 2002, Aurion and the specialist smelting operator, Ausmelt Ltd, combined to market the AusIron ferrous smelting technology designed to produce high-quality pig iron from steaming coal and fine iron ore.

A fully-owned subsidiary of Ausmelt, AusIron Development Corporation, became the sole marketing vehicle, with AuIron’s 90% held subsidiary SASE transferring its Whyalla pig iron demonstration plant in return for a 21.5% share of royalty and licensing revenues.