1 September 2014
Tim Treadgold
Forbes
It’s been a good news-bad news sort of day for Gina Rinehart, Australia’s richest person, with mining starting at a new iron ore project in which she has a 70% interest just as the iron ore price drops to its lowest in five years.
First ore was removed for stockpiling at the $10 billion Roy Hill mine in the Pilbara region of Western Australia, a key step towards exports to Asian steel mill-customers from this time next year.
By the time the maiden shipment leaves the Roy Hill project’s purpose-built wharf at Port Hedland Rinehart and her partners in the new mine will be hoping that the iron ore will have recovered from its latest price of $87.62 a ton, its lowest since October, 2009.
Price Down 33%
When construction started at Roy Hill late last year the iron ore price was closer to $130/t with the 33% fall blamed on a worldwide glut of the steel-making material and a slowdown in the Chinese construction sector which is the biggest single market for steel.
Rinehart, who is sitting on a fortune estimated at $17.7 billion and ranks as the world’s 46th richest person, will be feeling the effects of the price downturn when exports start but she is unlikely to be under financial pressure because of Roy Hill’s expected low costs.
Unlike other iron ore miners which are under increasing financial pressure, Rinehart has the advantages of high-grade ore, a low-cost transport system and size.
One Of The World’s Biggest
The first stage of Roy Hill is expected to yield around 55 million tons of ore annually making it one of the biggest iron ore mines in the world.
She also has strong partners. Japan’s Marubeni Corporation has a 15% stake in Roy Hill, South Korea’s Posco has a 12.5% interest and China Steel Corporation of Taiwan holds 2.5%. Rinehart’s 70% is held through her family company, Hancock Prospecting.
Neither Rinehart nor the other partners have revealed the break-even price for Roy Hill ore but it is likely to be produced at around $45 a ton, slightly more than the price of the Australian iron ore leaders, Rio Tinto and BHP Billiton, but well below the $80/t cost of some small miners.
Rinehart said in a statement after the first ore was mined at Roy Hill that the event marked a significant milestone for the project, describing it as “the largest single mainland construction project in Australia.
Still Growing In Tough Times
“As mining investment generally is contracting in Australia, Roy Hill and Hancock Prospecting is against the trend and continues to invest and grow,” she said.
Rinehart also said that it was hoped that the first shipment of ore would be made ahead of the scheduled start date of September next year.
While Rinehart and her partners would welcome a higher iron ore price the outlook is not encouraging with long-term forecasts such as those from the investment bank, Goldman Sachs, sitting around $80/t, which points to more pain before any recovery.
Courtesy of Forbes