Fortescue Metals to develop $1.7 billion iron ore project in WA

4th june 2018

Mining heavyweight Fortescue Metals Group will develop a new iron ore mine in the Pilbara at a cost of $US1.28 billion, in a move that will lift the iron grade of its ores and help address the issue of “discounts” that have hit its exports to China.

The so-called “Eliwana” project also includes the development of 143 kilometres of railway and a new dry ore processing facility capable of processing 30 million tonnes per annum.

Eliwana will be the first iron ore mine for Fortescue in its so-called Western Hub area, and is the first new mine announced by the company in several years.

Fortescue chief executive Elizabeth Gaines said the mine would have an expected life of about 18 years and would be funded from cash flow.

“It is about investing in the long-term sustainability of Fortescue, so yes, it is important,” she said.

“We significantly reshaped our business and our balance sheet, and the fact that we’re able to fund this from existing cash flow, (with) capital intensity at $US42 a tonne which is highly competitive, I think that demonstrates the maturity of the business,” she told Fairfax Media.

The miner said the project would create 1900 jobs during construction, deliver 500 permanent full-time positions when operational and make an important economic contribution.

Fortescue confirmed the move on Monday revealing that the miner’s board, which is chaired by iron ore magnate Andrew “Twiggy” Forrest, had approved the development of the mine.

Fortescue said the mine would start production in 2020, adding that the Eliwana mine “underpins production of a 60 per cent iron grade product (Fortescue Premium) in the second half of fiscal 2019”.

Fortescue sells ore with iron grades of about 58.5 per cent, which attracts a lower price than the industry benchmark. Product with lower iron grades have been experiencing steep discounts in recent months in the Chinese market, which is Fortescue’s number one export destination.

So selling iron ore with a higher iron grade should help Fortescue gain higher prices, subject to market conditions.

Ms Gaines said Eliwana would maintain Fortescue’s low-cost status while giving the company greater flexibility to respond to market dynamics.

Resources analyst with MorningStar, Mathew Hodge, said it seemed the discounts that had applied to Fortescue’s iron ore in China had weighed into the miner’s decision about which area to mine next.

“I think the product discounts have been a lot more severe than I guess what the company expected, and I’d say than what the market expected, although the market has increasingly factored in the discounts that we’ve had going forward – which is why the shares (of Fortescue) have underperformed relative to BHP and Rio principally,” he said.

Source: THE SYDNEY MORNING HERALD