Fortescue Metals has moved to try and boost the quality (and the returns) on its WA iron ore exports to China by approving the development of a $US1.28 billion ($1.7 billion) mine and rail project in Western Australia.
Fortescue said yesterday that the new mine will produce iron ore with an average 60% Fe (iron oxide content) closer to the standard 62% Fe ore than BHP and Rio Tinto ship to China (as fines), Japan (lump and some fines) and other markets in Asia.
Fortescue says its now ore (to be called Fortescue Premium) will be start becoming available in the second half of next year and the new mine will underpin this new blend.
Fortescue has been forced to spend $1.7 billion on the new mine because it is receiving less for its 58% ore compared to the price for the standard 62% ore than it is used to.
As well as the new mine a 143 kilometres railway, a new 30 million tonnes a year of dry ore processing facility and infrastructure will be built.
Fortescue says the project will be financed from cash flow.
That’s because China is demanding higher quality ore for steel mills to help cut smog and pollution levels in the cities where the steel industry is located (mostly in the north and northeast of the country).
Production from the mine is set to start in December 2020 and output will replace some of the 58% ore already produced by Fortescue, allowing it to maintain its 170 million tonnes a year shopping rate (the company is now shipping small, but growing quantities of 58% ore to India) for 20 years.
“This project allows us to commence the supply of Fortescue Premium product to the market from existing operations in the second half of FY19 with volumes increased as Eliwana ramps up to full production,” Fortescue chief executive Elizabeth Gaines said in yesterday’s statement.
Fortescue said the project would create up to 1900 jobs during construction and 500 full-time positions once operational.
"A definitive feasibility study report (DFS) has been completed with detailed design about to commence. The approvals process is under way for two public environmental reviews and a mining proposal,” Fortescue said.
It said its annual integrated reserve and resource report is scheduled for release in August and will include the updated reserve and resource position at Eliwana.
The market dropped the shares down 0.8% to $4.55.
