Rio Tinto Ignore the Slowdown

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(4 votes)

In a move that has many questioning their motives, Rio Tinto have put forward plans to develop one of the biggest iron ores mines in WA’s Pilbara. At a time when China’s demand for resources appears to be dwindling, the mining company’s expansion strategy is a surprise to many in the industry.

But apparently they know something we don’t. Pushing a positive perspective, Rio Tinto will invest a staggering $US3.2 billion into the mine and rail development. Optimistic future prospects are one thing but many wonder where their conviction is coming from.

Just over a year ago, the commodities-rich Western Australia was on an all-time high as it revelled in the Asian country’s exponentially-increasing demand for minerals; however, during the last 11 months we’ve helplessly watched as the ticking time-bomb enveloped all future hopes.

With a 28 per cent fall in iron ore prices ,and conversely an 11 per cent drop in the Aussie dollar - just this quarter alone, the present looks pretty grim. Like falling dominoes, major mining companies around the world have become victims to the buckling of prices from Australia’s biggest commodities consumer, yet Rio Tinto appears to yield little concern.

With construction expected to begin in early 2014, the Koodaideri mine promises to put 2700 miners and workers into jobs. From 2016, it is expected to produce 35 million tonnes of ore a year, before a ramp up in 2030, which will see that figure increase to 70 million tonnes a year.

pilbra-iron-ore

Further solidifying the preconceived growth, is the mining giant’s 10-year contract with logistics and transport company, Centurion, who will cover all Rio Tinto's iron ore and salt operations.

While the Chinese government reins in credit expansion in attempts to curb a financial crisis, fellow mining giant, BHP Billiton, say they are continuing to benefit from the demand in iron ore, one whose roots spread further than China, confirms Michael McCarthy, chief market strategist at CMC Markets Australia.

And the figures don’t lie; BHP Billiton recently reported record iron ore production, with a gain of 2.35% on the markets. Rio Tinto’s 2013 Operations Review highlights a similar feat with the giant miner producing 6% more iron ore in the first half of 2013 compared to 2012.

The China-Australia relationship is and has always been a fairly fickle one; from day one we lay at the mercy of China’s movements: its soaring demand for Australia’s resources fuelled our economy and its 180°-turn just as quickly dampened it.

chine-construction

Though the mining companies are quick to contest this theory, saying our resource-rich country, is not so completely dependant on the China-driven growth, and so the future looks promising.

Though as the Australian dollar weakens and the price of iron ore precariously sits at $US115 a tonne – a disappointing drop from the enviable $US180 a tonne once paid by Chinese mills, during a time when our dollar celebrated a high of $US1.10 – it’s little wonder that investors are looking for answers.

But are we making a mountain out of a molehill? It’s not only Rio Tinto that’s nodding in agreement; BHP Billiton and Fortescue Metals Group are also ramping up production, despite the mixed signs from China.

With solid figures, it’s hard to argue a case against the upcoming mining expansions, though we can only hope that companies such as Rio Tinto and BHP Billiton aren’t simply building false hope. For now the mining heavy-weights provide a light at the end of the tunnel, the question is: do we trust them?

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o BHP A$31.91 ▼0.24 (-0.75%)
o Rio Tinto A$58.55 ▼0.65 (-1.10%)
o Fortescue A$2.02 ▼0.12 (-5.61%)
o Newcrest A$12.42 ▼0.23 (-1.82%)
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Minetalk Poll

Is the mining boom in Australia over?

Is the mining boom in Australia over?

No, it's just media hype.
Yes as a result of lower demand.
Still plenty of resources.
There will be a second boom.
1 Votes left

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