Register with us today

and in less than 60 seconds continue your access to:Latest news headlinesAnalytical topics and featuresCommodities videos, podcast & blogsSample market prices & dataSpecial reportsSubscriber notes & daily commodity email alerts

Already have an account?

Log in to register

Forgot Password

In this list
Metals

Adding value to iron ore, at a cost: Australia’s magnetite curse strikes again

Commodities | Energy | Metals | Petrochemicals | Shipping

Environment and Sustainability

Energy Transition

Platts Global Integrated Energy Model

Electric Power | Renewables | LNG | Infrastructure Utilities

Caribbean Energy Conference, 21st

Agriculture | Grains | Metals | Steel | Raw Materials | Shipping | Dry Freight

Firm Supramax rates force East Coast India iron ore, pellet cargoes on Capesizes: sources

Metals

Rising EV-grade nickel demand fuels interest in risky HPAL process

Adding value to iron ore, at a cost: Australia’s magnetite curse strikes again

Around nine years ago, your correspondent was part of a media tour that over consecutive days visited iron ore operations in Western Australia belonging to Atlas Iron and Karara Mining. The contrasts between the two mining operations were striking.

Junior miner Atlas Iron's approach had been to quickly get its low grade (57.5% Fe) direct shipping (hematite) ore to China to generate cash flow to develop other mines. It was a very simple operation; after minimal processing the ore was trucked the short distance to Fortescue Metals Group's rail facility, loaded and taken to Port Hedland for export. Hematite DSO is what Australia's iron ore industry was built upon.

Karara, which at the time was a 50:50 joint venture between Perth-based Gindalbie Metals and China's Ansteel, some 200 km from Geraldton, was an entirely different operation. It comprised several huge grinding mills, magnetic separation units, tailings circuits, pipes going everywhere, and all of this fed by significant water and power resources. Why? Because it was set up to produce magnetite concentrate—a higher grade product which requires an enormous amount of expensive processing and beneficiation.

Karara magnetite mine Australia

Karara mine, Australia, in 2011

Much of the rhetoric at the time went along these lines: magnetite was the future of iron ore, the first choice of Chinese steel mills looking to reduce pollution and produce higher quality steel. The returns would justify the investment. China understood magnetite and was happy to pay for it; Australia didn't understand magnetite, but it soon would.

Go deeper: Special report - Investors and physical hedgers flock to iron ore

Unfortunately, the story of Karara is emblematic of Australia's magnetite ore industry, which to date has been a major disappointment. Amid cost blow-outs, Gindalbie ran out of money and was forced to sell down stakes to its Chinese partner. Phase one production of 8 million mt/year of concentrate took far longer than planned, and a second similar phase seems to have been shelved indefinitely. At one point in 2013, the operation was apparently bleeding close to $60 million a month in working capital, while producing negligible amounts of magnetite concentrate.

Iron Bridge wobbles

What brought all this to mind, of course, was news this month that Fortescue Metals Group's Iron Bridge magnetite project in the Pilbara had run into problems, resulting in senior managers leaving the company. Fortescue CEO Elizabeth Gaines was livid that the issues at the project had not been communicated properly internally. Subsequently, the project budget has been lifted to $3 billion from $2.6 billion, with first shipments pushed back by six months to the second half of 2022. Some analysts believe this time frame is optimistic. A 12-week review will look at whether magnetite will be transported via a new pipeline or whether existing rail logistics can be used.

Fortescue has previously said that Iron Bridge is a relatively simple magnetite operation compared to others in Western Australia. RBC analyst Kaan Peker pointed out in a research note that Fortescue had invested and tested more at Iron Bridge to "develop the process versus other Australian magnetite mines that have struggled."

In a hint of understatement, he also noted that "WA magnetite projects have had a very checkered past."

Along with Karara, that past includes:

  • Grange Resources' majority-owned $3 billion Southdown project in WA—never developed despite Japanese investment
  • The $8 billion Sino Iron project—perhaps the biggest "soap opera" in Australian iron ore history, with long running legal cases, massive cost over-runs, the booting out of Chinese contractors and major delays
  • Jupiter Mines' Mt Ida project—scrapped due to "depressed iron ore prices"
  • Cape Lambert Resources' Pilbara magnetite project; and Australasian Resources' Balmoral South, near Sino Iron in Cape Preston—both currently residing in the "where are they now?" file

Can Australia add value?

When asked about the latest magnetite travails, an experienced mining executive in Perth said: "Despite being the future of iron ore for decades to come, magnetite has never been in Australia's wheel house technically. It's just not something we're good at.

"We're not so good at adding downstream value; we can dig it out of the ground but we're not pioneers in steelmaking, or iron ore or coal beneficiation either," he told S&P Global Platts.

He cited the examples of BHP Billiton's hot briquetted iron plant at Port Hedland which was closed in 2005, and Rio Tinto's HIsmelt pig iron plant, which was eventually packed up and shipped off to India's Jindal Steel & Power Ltd.

Fortescue will undoubtedly overcome its challenges, and Iron Bridge will likely be a successful addition to the miner's portfolio, helping to lift the overall quality of its iron ore.

But the problems encountered at Iron Bridge highlight two issues. Firstly, as discussed in previous blogs, it shows just how difficult it is to develop and commission new iron ore projects. Delays are inevitable and this will keep supply tight and prices well supported.

Secondly, given Australia's apparent inability to make the best use of its abundant resources and add value to its commodities, how realistic are the country's green steel dreams? Fortescue is leading the way here, too. And while these ambitions should be applauded, achieving them won't be easy.