CITIC Pacific Mining chief executive Chen Zeng says Sino Iron will ultimately enhance the long-term competitiveness of Western Australia’s mining industry, if the company can overcome its short-term challenges, which include a dispute with Queensland businessman Clive Palmer that is proving difficult to resolve.
Speaking at a business function hosted by The West Australian newspaper, Mr Zeng reflected on CPM’s mammoth investment in its Sino Iron operation, located near Cape Preston in WA’s Pilbara region.
Sino Iron is a 17 million tonne per annum magnetite operation which employs around 3,000 workers, including contractors.
Forecasts by Deloitte Access Economics indicate the operation would contribute more than $5 billion in royalty payments to the WA government over its mine life, and $51 billion would be spent on goods and services in the state.
However, getting to this point, Mr Zeng said, has not been an easy journey.
Mr Zeng said when he signed on as chief executive of CPM in early 2014, the project’s economics were widely questioned, with industry commentators focused on the huge capital investment in the mine – reportedly more than $US12 billion to date – and the fact that no miner had been able to develop a magnetite operation in Western Australia.
“Our vision was to transform low-grade magnetite iron ore – worthless in its natural form – into a high iron content, premium export product,” Mr Zeng said.
“China has long mined and refined magnetite ore for steelmaking. For the Pilbara though, this was something completely new.
“It’s never easy being a first mover. And to top it off, first phase construction would occur during the height of WA’s great mining boom – where skilled labour and materials were in short supply and came at an escalated cost.”
Mr Zeng said many had questioned whether CPM would be able to complete the project’s construction, considering that it was a vertically-integrated pit-to-port operation on a scale never seen before not only in Western Australia, but the world.
But within two years of his appointment, Mr Zeng said Sino Iron had confirmed it was able to produce a premium product which would be attractive to steel producers.
Recent shifts in market dynamics, with Chinese steel producers seeking higher-grade feedstock that produces less pollution in the steelmaking process, have placed the Sino Iron operation on more solid footing, at the same time its output is ramping up to its nameplate capacity.
“Last year we shipped 17 million tonnes – a 54 per cent increase on 2016,” Mr Zeng said.
“This year, we’ll go higher. With Sino Iron in operation, Western Australia is already the world’s biggest seaborne supplier of magnetite concentrate to China.
“China Customs Imports data shows Sino Iron currently accounts for around 19 per cent of the total seaborne-traded concentrate in China, by volume.
“Some of our product goes to CITIC’s special steel mills, but most of it feeds the blast furnaces of third party customers.
“And interest in WA magnetite is growing, with our product now attracting interest from steel mills outside of China.”
Mr Zeng pointed to the South Australian government’s target of $10 billion of investment in the state’s magnetite industry within the next four years as an illustration of the changing iron ore market, with higher grade ore set to become even more competitive as Beijing continues to tighten emissions controls.
South Australia’s government is seeking to develop its magnetite industry to produce around 50 million tonnes of concentrate by 2030.
“Given this shift in the market, Sino Iron and the development of Australia’s vast, largely untouched magnetite deposits will help enhance the long-term international competitiveness of our local industry – hedging WA from the risks associated with a lower grade/high volume focus,” Mr Zeng said.
“Right now, WA’s ahead of the game, and we want to keep it that way.
“We have vast resources of magnetite here in WA and projects such as ours will be strategically critical in determining whether these deposits are eventually developed, and developed well.”
The last remaining question hanging over the Sino Iron project, according to Mr Zeng, was whether it could be profitable.
Due to the fact that magnetite ore needs to be beneficiated before it can be sold as steel feedstock, Sino Iron is naturally a higher cost operation than major Pilbara iron ore producers BHP, Rio Tinto or Fortescue Metals Group, each of which produce direct shipping ore.
“Our additional beneficiation processes mean we are an inherently higher-cost producer compared to our dig-it-up and ship-it-out cousins,” Mr Zeng said.
“But I’m convinced that if we can be the best at what we do – that is, to make WA home to the lowest cost magnetite producer in the world – it will be worth the effort.”
Ongoing efficiency upgrades and optimisation of processes and technology have resulted in Sino Iron’s costs of production falling since 2016, but Mr Zeng said it was the company’s external challenges which had caused the most concern.
Sino Iron’s disputes with tenement owner Clive Palmer have been well documented – the highest profile of which being a disagreement on the value of royalties to be paid to Mr Palmer’s Mineralogy after a benchmark price that was used as the initial basis to calculate the royalties was discontinued in 2010.
Earlier this year, CPM was ordered by the Supreme Court of Western Australia to pay Mineralogy $US149 million related to the so-called 'Royalty-B' dispute, a decision which CPM is appealing.
Mr Zeng said media reports that the judgement would add an additional $US10 to the cost of every tonne of concentrate produced at Sino Iron were “in the ballpark”.
“For those who know the industry, I don’t have to explain the impact of an ongoing financial imposition of that order, on an already inherently higher cost producer,” he said.
“The ultimate resolution of this matter will have a significant bearing on the long-term viability of Sino Iron and the benefits it delivers to Western Australia.”
The other big challenge at Sino Iron, Mr Zeng said, was securing approval to expand the mine’s operational footprint.
For several years, CPM has been forced to deploy high-cost solutions for the placement of waste material from the mine, with Mr Zeng describing those initiatives as “sub-optimal, costly and temporary”.
Mr Zeng said CPM had been puzzled by Mineralogy’s refusal to support the expansion, which is necessary under the State Agreement with the WA government.
“We’re working very hard to find a resolution,” he said. “CITIC’s intention is very simple – to make Sino Iron sustainable and profitable for all stakeholders, including Mineralogy.”