Asia's Interest in Australian Iron Ore Continues to Grow

Marubeni Corp. of Japan, POSCO, and STX, both of Korea, will buy 30 percent of an Australian iron ore project for 3.6 billion Australian dollars (AUS$), adding to a long list of Asian companies that have invested in Australia's iron ore in an attempt to secure supplies for the future when demand is expected to be strong due to rapid urbanization.

They are investing in the Roy Hill project, located in the Pilbara iron belt and owned by Hancock Prospecting. Marubeni will purchase 12.5 percent for AUS$1.5 billion, POSCO will purchase 15 percent for AUS$1.7 billion, and STX will receive 2.5 percent for AUS$300 million.

Production is estimated at 55 million tonnes per year, with the first shipments due in 2014. It is set to become one of the largest mines in Australia, matching production of Fortescue Metals Group, one of the largest producers in Australia. For their AUS$3.6 billion investment, the consortium will receive 16.5 million tonnes of iron per year.

Iron ore in Australia tends to be situated in remote locations, making transportation a major problem. Many investors are deterred by the transport difficulties. A large part of the investment in the Roy Hill mine will be used to construct a 342 kilometer railroad from the mine to shipping terminals in Port Hedland.

Gina Rineheart, chairman of Hancock Prospecting, said, “we are pleased to finalize this strategic alliance with companies whose countries need our iron ore and with the mutual determination to make this project a success.”

Iron ore miners in Australia are set to receive a total of $35 billion in order to grow their operations in the near future. This month Fortescue launched a $1 billion bond offering in unsecured notes to help fund its plans to nearly triple annual production to 155 million tonnes by the middle of next year. Rio Tinto is investing in efforts to increase its production from 225 million tonnes per year, to 283 million tonnes in 2013, and BHP Billiton has set out a $10 billion expansion for its iron ore mines.

China currently purchases about 60 percent the exports for the iron ore market, and commodities forecasters are divided on whether such a surge in supply coinciding with a Chinese economic cool-off will finally push the global market for iron ore into oversupply over the next 12 months or so. Prices could be set to crash if this happens.

By. Charles Kennedy of Oilprice.com