Rinehart spurs $7b mine spree
Almost $US7 billion of investment in Australia's mining industry was unveiled on the eve of Easter, including a significant step forward for Gina Rinehart's Roy Hill project.
Despite perceptions that the peak of the mining boom has passed, both 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 Korean company Samsung C&T $5.9 billion to build the company's iron ore project in Western Australia's Pilbara region. 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, 12.5 per cent owned by Korean steel giant 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, and it is intended that Roy Hill will produce 55 million tonnes a year; roughly the amount that Andrew Forrest's Fortescue Metals Group shipped in the 2012 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 has its headquarters in Melbourne, said the China Development Bank had indicated it would arrange and underwrite up to $US1 billion of financing for Dugald River. While the deal remains non-binding for now, MMG 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 loan," he said.
MMG already has close ties to the Chinese government given its biggest shareholder is a Chinese state-owned enterprise known as China Minmetals Corporation.
Zinc is primarily used to prevent corrosion in steel and Dugald River is expected to produce 200,000 tonnes each year. Mr Michelmore said he expected the market for zinc to be tight in coming years as older mines closed 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.