Iron ore miners pay the price of $30B expansion through higher royalties

Mega-miners BHP Billiton and Rio Tinto on Thursday learned the price of their planned expansions in the Australian Pilbara: increased iron ore royalties to the West Australian government.

Sydney Morning Herald reports the WA government will reap $1.9 billion more in mining royalties over three years after deals were reached with BHP Billiton and Rio Tinto:

Premier Colin Barnett said the royalty rate for fines iron ore – grains smaller than 10 millimetres – would increase from 5.625 per cent of sale revenue to 6.5 per cent from July 1, next year and to 7.5 per cent from July 1, 2013.

In return, mining giants BHP Billiton and Rio Tinto would be able to expand their projects in the Pilbara, worth an estimated $30 billion. reported at the end of September on BHP Billiton’s plans to increase its production in the Pilbara region – the heart of Australia’s iron ore mining – to 450 million tonnes a year by adding infrastructure and building new mines. BHP’s current iron-ore production capacity is 155 million tonnes a year in the Pilbara, while rival Rio Tinto’s capacity is 225 million tonnes a year. Rio Tinto announced earlier in the month that it wants to grow output to 333 million tonnes by 2015.

Vale SA, the world’s largest iron ore exporter, is planning to start work on its biggest project to date next year – the Serra Sul iron ore mine alone will add 90 million Mtpa to the Brazilian company’s current 310 million tonnes capacity.