More iron ore coming Western Australia's way

Rio Tinto to spend $30.9 million on a feasibility study for $2.2 billion Koodaideri mine

The global glut in iron ore will not be helped by an investment by Rio Tinto (LON:RIO) to develop its Koodaideri iron ore deposit in Western Australia.

The British and Australian mega-miner said on May 24 it has committed to spend $30.9 million on a feasibility study for the project. The upcoming feasibility report follows a prefeasibility study done in November 2016, the contents of which included a 40 million tonnes per annum dry crushing and screening non-process infrastructure, product stockyards, rail loop and load-out, and a 170-kilometre rail link to the main line.

The $2.2 billion project, which Rio says is intended to replace existing production, would begin construction in 2019. The new open-pit mine, or collection of pits, is expected to produce up to 70 million tonnes a year of ore and have a minelife of about 30 years, the West Australian reported yesterday.

“We remain firmly focused on our value over volume strategy and maximising returns through enhanced productivity. We are examining the Koodaideri project as an option to help us maintain our low cost competitive position and assist in maintaining the Pilbara Blend product quality,” Rio Tinto Iron Ore chief executive Chris Salisbury said in a statement.

The move comes as the iron ore price moves another leg down.

Among the factors in causing the price to slip are a weak Chinese economy, which consumers three quarter's of the world's iron ore; record-high stockpiles in China; the increasing use of scrap steel by Chinese steelmakers; and the continuing over-supply of iron ore. The global glut has worsened in recent months due to fresh supply coming from recently opened mines, such as Roy Hill in Australia, Anglo American’s Minas Rio and Vale’s S11D in Brazil.

The worsening market situation has prompted analysts, such as BMI Research to revise their prices outlook down. In May, the research arm of Fitch Group said it expected seaborne iron ore to drop to $65 a tonne this year (down from a previous forecast price of $70), and $50 in 2018, to end up touching a low of $44 by 2021.