Rinehart mine takes on critics as iron exports set to start

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(Bloomberg) -- Billionaire Gina Rinehart’s Roy Hill Holdings Pty pushed back against suggestions the start of shipments from the $10 billion Australian iron ore project this quarter will further hurt prices, insisting most new supply won’t be sold for immediate delivery.

Almost 90 percent of output from the mine in Western Australia’s Pilbara region is under long-term contract, including more than half earmarked for partners outside China, Roy Hill Holdings Executive Director Tad Watroba said on Wednesday. First exports will start in the final two months of the year, he said in a statement. That’s later than initially planned.

Iron ore plunged about 70 percent from a 2011 peak as surging low-cost supplies from Australia’s BHP Billiton Ltd. and Rio Tinto Group and Brazil’s Vale SA spurred a worldwide glut just as growth in China slowed. Citigroup Inc. said last month that the supply from Roy Hill would contribute to a further slump next year, describing the new project as an “impending whale” that would have a large impact on prices.

Got It Wrong

“Some media have got it wrong and are overstating the impact on the iron ore price from the Roy Hill project,” Watroba said, without identifying any particular report. Assessments of the operation’s impact ignore the fact that its initial shipments will represent only a small portion of its projected 55 million ton a year capacity, he said.

Ore with 62 percent content delivered to Qingdao rose 0.3 percent to $55.12 a dry metric ton on Wednesday. It’s 23 percent lower this year after tumbling 47 percent in 2014. Citigroup said new supplies, including from Rinehart’s project, coupled with the impact of steel-output cuts would drive prices below $40 next year.

“There will be very limited impact because we expect the additional production from Roy Hill to be compensated by a small increase in steel demand and further reduction in Chinese domestic iron ore supply,” Caue Araujo, iron ore industry director at AME Group in Sydney, said on Wednesday. Roy Hill will produce 30 million tons in 2016, he forecast.

Marubeni Corp. which holds a 15 percent stake in Roy Hill, is a partner alongside South Korea’s Posco and Taiwan’s China Steel Corp., according to the producer’s filings. The three partners have committed to take at least half of annual output.

Roy Hill had set a deadline of shipping its first ore by Sept. 30, though flagged in July it was experiencing delays. The mine may meet its full annual output target of 55 million tons in 2017, Chief Executive Officer Barry Fitzgerald said in an August interview.

Rinehart, whose father discovered the iron ore deposits that today supply Asia’s steel industry, said in April that while prices had sunk more than expected amid the global glut, they wouldn’t be down forever.

“Roy Hill was not in the market when the iron ore price crashed last year or continued to drop this year, and won’t be shipping 55 million tons next year as it continues to ramp up,” Watroba said. Planned supply increases by bigger competitors through the end of 2017 will exceed shipments from Roy Hill, which will put very little ore onto the spot market, he said.