Rinehart spurs $6.7b boost in investment

Almost $US7 billion ($6.7 billion) worth of investment in Australia's mining industry was unveiled on the eve of Easter, including a significant step for Gina Rinehart's Roy Hill project.

Almost $US7 billion ($6.7 billion) worth of investment in Australia's mining industry was unveiled on the eve of Easter, including a significant step for Gina Rinehart's Roy Hill project.

Despite perceptions that the peak of the mining boom has passed, Roy Hill and the Dugald River mine proposed by China's MMG took a step forward with crucial contracting and funding announcements.

Roy Hill Holdings revealed it would pay South Korean company Samsung C&T $5.9 billion to build the company's iron ore project in the Pilbara.

Aside from the giant open-cut mine, Samsung will build an ore-processing plant, a 340-kilometre railway line and port infrastructure at Port Hedland.

Samsung's involvement increases the Korean influence on Roy Hill, which is 12.5 per cent owned by Korean steel group Posco and 2.5 per cent owned by Korean shipbuilding and trading company STX.

Japanese and Chinese companies also hold minority stakes, leaving Ms Rinehart with control over about 70 per cent of the project, which is tipped to cost close to $10 billion.

A financing plan is hoped to be concluded by Christmas. Roy Hill is expected to produce 55 million tonnes a year, roughly the amount that Andrew Forrest's Fortescue Metals Group shipped in the 2011-12 financial year.

Despite sceptics suggesting the late 2015 completion date will leave Roy Hill selling iron ore into a permanently low price environment, the consortium insists the project is viable at low iron ore prices.

Meanwhile, the Dugald River mine looks set to attract large amounts of Chinese money into western Queensland, where MMG plans to develop a new zinc, silver and lead mine.

MMG - which is listed in Hong Kong but based in Melbourne - revealed the China Development Bank had indicated it would arrange and underwrite up to $US1 billion worth of financing for Dugald River.

While the deal remains non-binding for now, MMG's chief executive Andrew Michelmore said he hoped to formalise the loan on 13-year terms by June.

"That would actually enable us to construct Dugald River, which is a three-year construction period and then probably have the best part of 10 years to look to repay the line," Mr Michelmore said.

MMG already has close ties to the Chinese government given its biggest shareholder is a Chinese state-owned enterprise - China Minmetals Corporation.

Zinc is primarily used to prevent corrosion in steel, and Dugald River is expected to produce 200,000 tonnes of zinc each year.

Mr Michelmore said he expected the market for zinc to be tight in coming years as older mines closed down and demand picked up in China.

"Eighty per cent of cars built in the US and Europe are zinc coated for corrosion protection. Interestingly, just under 20 per cent of the cars in China presently are coated in zinc, and as they move towards longer life, higher-quality products that's what you are going to see; continued demand for zinc," he said.

MMG already produces zinc, silver and lead about 200 kilometres from Dugald River at the Century mine, which is one of those expected to close within the next three years.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles