Mining giant BHP (ASX:BHP) said it will to lift its iron ore capacity by almost 30% without building any new mines and vowed to overtake rival Rio Tinto (LON:RIO) as the world’s most profitable producer of the steelmaking commodity.
The plans unveiled by world’s largest miner by market value were unsurprisingly unwelcome by the market. Glencore chief executive Ivan Glasenberg, who has already slammed the big three iron ore producers —Rio, Vale and BHP— for continuing to expand output and hurt prices, was the first to raise his voice.
The executive said that, together with keep driving prices down, BHP’s announcement was set to hurt Guinea, one of Africa’s poorest countries.
The West African nation has put all its hopes in the massive Simandou iron ore project, which includes a railway and a port. The government, Dow Jones reports, expects to double gross domestic product and open up the nation’s remote interior. But with prices touching historical lows, that goal is increasingly becoming a pipedream.
“Is Guinea going to have Simandou developed at current prices? It’s going to be difficult,” Glasenberg was quoted as saying.
“It’s a project that is going to cost in excess of $25 billion. Who’s going to put in $25 billion?” he added.
Charity begins at home
Jimmy Wilson, BHP’s iron-ore division head, didn’t seem too worry about Guinea or the global market. Unveiling the company’s plan to boost the unit, Wilson said the company is committed to keep digging more tons of iron ore out of the ground, even as the steep drop in prices pushes smaller rivals to the wall.
“Charity begins at home,” the WSJ.com quoted him as saying.
“We have the strongest resource position in Western Australia and the quality of our ore bodies will help us sustain strong margins over the long term. We have already significantly cut the cost of production at [the region’s iron ore operations] and plan to go further,” he noted in a statement.
He estimated BHP could cut its production costs—excluding the price of freight and royalty payments to the government—to less than US$20 a ton. This would be over 25% lower than its average in the year through June 2014.
Over the next five years Australia’s iron ore exports are projected to increase at an average annual rate of 5% and total 900 million tonnes in 2019.