Billionaire’s iron ore mine begins exports in price collapse

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(Bloomberg) -- The first shipment from billionaire Gina Rinehart’s $10 billion iron ore mine in Australia fulfills a two-decade dream just as prices trade at the lowest in at least six years.

Thursday’s maiden export cargo is bound for Posco’s steel mills in South Korea, Roy Hill Holdings Pty said in an e-mailed statement. It completes a quest begun by Rinehart in 1992 to develop and control her own iron ore operation in the mineral- rich region her father helped uncover more than 50 years ago.

“None of us are thrilled with the ore price,” Rinehart, Australia’s richest person, said last week in a speech in Sydney, insisting that Roy Hill’s production costs mean it’s better positioned than most competitors. “Australia needs to understand that there is nothing we can do about international prices and if we don’t keep our costs down and export competitively, other nations will.”

Iron ore has tumbled 80 percent from a 2011 peak amid the slowest pace of economic growth in a quarter of a century in China, the top consumer, and as the largest suppliers raise output. Roy Hill, which will be Australia’s largest single iron ore mine, will contribute to declining prices, according to Citigroup Inc., which described the mine in September as “an impending whale.”


Family History


Lang Hancock, Gina’s father, was among prospectors who uncovered Australia’s iron ore riches in the 1950s and was instrumental in winning investment from Japan that helped spur the development of Western Australia’s Pilbara region, according to Philip Kirchlechner, director of Perth-based Iron Ore Research Pty.

Iron ore with 62 percent content delivered to Qingdao fell 1.4 percent to $38.52 a dry ton on Thursday, the lowest level in daily data dating back to 2009, according to Metal Bulletin Ltd.

While Roy Hill has limited exposure to spot markets, its longer-term contracts will eventually feel the impact of weaker prices, according to Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne. “The 18-monthly or quarterly contracts will eventually get rolled over at lower prices,” he said.


Venture Partners


Roy Hill has rejected suggestions the start of shipments will further hurt prices, insisting most of its supply won’t be sold for immediate delivery. Some industry analysts and media have implied the project is to blame for iron ore’s slump and are “continually overstating the impact” on the market,  Tad Watroba, executive director of Rinehart’s Hancock Prospecting Pty, said Thursday in the statement. The operation is targeting eventual annual output of 55 million tons.

Roy Hill is seeking to cut costs further and implement technology that can boost savings, Chief Financial Officer Garry Korte said Dec. 3 in Sydney, speaking alongside Rinehart. The producer is using drones and automated drills to help eliminate waste and is investigating whether to adopt robotics in some maintenance and refueling tasks, he said.

Hancock holds 70 percent of Roy Hill Holdings, while partners Marubeni Corp. have 15 percent, South Korea’s Posco has 12.5 percent and Taiwan’s China Steel Corp. holds 2.5 percent, according to the producer’s filings. Hancock’s three partners have committed to take more than half of annual output, and about 90 percent of the mine’s production is under long-term contract, Rinehart said last week.

The MV Anangel Explorer departed Port Hedland Thursday bound for South Korea, data compiled by Bloomberg shows. The ship was carrying Roy Hill’s exports and another vessel, the MV Dream Power, is being loaded with a second cargo, according to Roy Hill.

“It’s a huge competitive advantage to have the long terms contracts with Korea and Japan,” said Kirchlechner, a former executive with Rio Tinto Group. “The markets won’t grow much, but they are very stable and reliable.”