Gina Rinehart is digging what will likely be the world’s last big iron ore mine for years to come in the Australian outback. The timing couldn’t be worse for the billionaire mining heiress given tumbling prices and oversupply, but the message for other iron ore miners is clear – the fight for survival is going to get more difficult.
Since construction of the $13 billion Roy Hill mine began four years ago in partnership with South Korean steelmaker POSCO , Japan’s Marubeni Corp and Taiwan’s China Steel Corp, iron ore prices have slumped 70 per cent and forecasters see worse to come.
Blueprints for new mines are being abandoned from Australia to Guinea, with a West Africa mine shelved this month after Ivan Glasenberg’s commodities group Glencore conceded there was no prospect for a “profitable development”.
“If someone was to walk up today and say ‘I want to develop an iron ore mine,’ you’d think they were crazy or know something others don’t,” said James Wilson, an analyst for Morgans Financial in Perth.
Analysts blame a massive rise in production on overestimates of China’s appetite for imported ore by sector titans Vale of Brazil, Rio Tinto and BHP Billiton .
Together with Fortescue Metals, these companies added 234 million tonnes of iron ore in the past two years – five times yearly US consumption – and intend to inject another 196 million tonnes by 2020.
Their strategy is to eliminate competition, even it means driving down the price to the break-even point.
Enter Rinehart, whose Roy Hill mine will add another 55 million tonnes of high-grade ore.
The nation’s richest woman, Rinehart’s estimated $14.8 billion fortune comes from royalties negotiated by her father, Lang Hancock, after he discovered vast iron ore deposits in 1952.
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