Iron-Ore Miners Announce New Projects in Western Australia's Pilbara Region

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Pilbara region of Western Australia is bustling with activity. Several domestic and international companies are proceeding with mining projects. Atlas Iron Limited (ASX:AGO) (Perth, Australia) recently decided to build the 10 million-ton-per-year Turner Hub plant, a central processing facility. The plant proposes to process iron ore from three of Atlas Iron's four mines in the region. Atlas Iron decided to build the plant after pre-feasibility studies identified and recommended construction of a central processing plant at the site.

The $161 million Turner Hub site will utilize ore from the Mount Webber, Wodgina and Abydos mines that are situated at a distance of 80 kilometers from each other. Subsequently, the iron ore will be delivered to the New Utah Point Berth, which is near Port Hedland. Media reports indicate that the company has already secured 15 million tons per year capacity at the port. The Turner Hub project, which will blend different varieties of iron ore, is expected augment mine life, stabilize ore prices and provide huge cost savings. Atlas Iron also will undertake detailed feasibility studies that are likely to be completed by the end of 2011.

Atlas Iron has several mining interests in the Pilbara region. Recently, the company revised its iron-ore resource estimate at four of its mines, including that of Pardoo, which it reduced by 50% to 53.2 million tons. By the end of 2012, the Mount Webber, Pardoo, Wodgina and Abydos mines are expected to produce 12 million tons per year of iron ore. This fiscal year, the company is targeting a production of 6 million tons per year.

In a related development, Rio Tinto plc (NYSE:RTP) (London, England) is proceeding with the development of the $1.6 billion Hope Downs 4 joint venture iron-ore mine. The mine, which is slated for production in 2013, is a joint venture between Rio Tinto and Hope Downs Iron Ore Pty Limited (West Perth, Australia), which is owned by Hancock Prospecting Pty Limited (Perth, Australia). The companies propose to invest $1.2 billion on the open-cast mine, while Rio Tinto will invest a separate $425 million on infrastructure development, roads, power plants and railway network. Construction is likely to begin in 2011, after the necessary regulatory clearances are received.

Rio Tinto also inaugurated its Brockman-4 iron-ore mine in the Pilbara region recently. The mine, which will have an initial production capacity of 22 million tons per year, is part of the company's expansion projects. Currently, the mine also includes a 50-kilometer railway line and accommodation for 520 people. By 2015, as part of the augmentation plan, Rio Tinto has a target of achieving an iron-ore production capacity of 330 million tons. During this period, the output of Brockman-4 mine will increase to 40 million tons.

However, there has been no traction on the proposed joint venture between Rio Tinto and BHP Billiton plc (NYSE:BBL) (London). The joint venture, which is expected to provide estimated cost savings of $10 billion for each company, is running behind schedule due to several regulatory approvals. According to Marius Klopper, the chief executive officer of BHP Billiton, the companies have set a deadline of December 31, 2010; failing which, a decision to expedite the joint venture will be made. In December last year, the Australian Competition and Consumer Commission (ACCC) began the assessment and approvals procedure. In March 2010, the ACCC raised concerns on the impact of the joint venture on world iron-ore prices and competition. Several global iron and steel producers have objected vehemently to the proposed joint venture, as it can reduce the choice of suppliers and prices, and lead to monopoly. Last year, the combined deliveries of both companies accounted for nearly 75% of China's imports.

In the midst of global concerns over the joint venture, the industry has abandoned its 40-year tradition of annual price contracts and adopted a new quarterly pricing mechanism. For years, iron-ore suppliers have been negotiating for a new system that will be based on average spot prices in the preceding quarter. The pricing procedure was implemented in April this year. According to Sam Walsh, the chief executive officer of Rio Tinto, during the October-December 2010 period, price of iron ore may decline by 13.3% to $127 per ton freight-on-board. The $127 per ton price was determined on the basis of the new pricing mechanism. Terming the price as "still attractive," Walsh was confident about the steady demand from the iron and steel industry.

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