http://www.theaustralian.com.au/business
IF THE current iron ore price decline continues into 2017 and beyond, then Gina Rinehart’s massive $10 billion Roy Hill mine project is set for very large losses when it starts production next year.
And if the reports of safety problems in the construction phase are right, then the capital costs will blow out beyond $10bn, especially if unions start playing hard ball, as they often do when there is a safety cause.
Accordingly, it makes perfect sense for Gina Rinehart to sell her Fairfax shares because additional funding will almost certainly be needed. The fact that she is unhappy with Fairfax management and can exit at a small profit makes the sale even more sensible. It’s an investment that was made when the iron ore price was booming.
The royalties the family receives from Rio Tinto iron ore production provide an underlying base of additional funding which means that the Hancock empire is not about to fall over. Nevertheless, the Hancock empire is set for a nasty experience.
If the mine, rail and ports are constructed on budget, the hi-tech facility is expected to have operating costs that would enable it to be profitable on a cash basis even if the iron ore price stays at existing levels.
But it will take two or three years for a project as complex as Roy Hill to reach that optimal stage. Initial operating costs will be far higher and cause major losses. Some of those losses will have been in the initial funding budgets but during that planning, a $60-a-tonne iron ore price was simply a worst-case scenario, not a likely actuality.
For the rest of this article, click here: http://www.theaustralian.com.au/business/opinion/gina-rineharts-roy-hill-mine-is-set-for-nasty-losses/story-fnp85ntp-1227212641291