Looks like Bao found a nearby source of inexpensive iron ore:
Reuters reported that Chinese steel giant Baosteel Group is counting on slashing the AUD 7.4 billion cost estimate for the West Pilbara Iron Ore project in Australia to justify building a new mine, rail and port that will add to a global glut of iron ore.
Baosteel Resources, working with Australian rail operator Aurizon Holdings Limited took control of the West Pilbara Iron Ore project in July after sealing a AUD 1 billion takeover of Aquila Resources.
In buying into West Pilbara, Baosteel shrugged off the disastrous experience of state owned rival CITIC Pacific Limited on the AUD 8 billion Sino Iron project. China's biggest iron ore investment in Australia began exporting in 2013, three years behind schedule and more than three times over budget.
Baosteel and Aurizon managed to buy into the West Pilbara project during a downturn in the industry, while CITIC Pacific and other Chinese entities invested at the peak of the commodities boom, when Beijing was racing to secure supplies of iron ore and coal.
That fueled a construction boom in coal and iron ore mines, which came on top of mega projects in Australia's gas sector that drove up labor and equipment costs. Those have now dropped as commodity prices have cooled and projects have been completed or shelved.
Mr Wu Yiming CFO of Baosteel Resources said that "We will learn from CITIC and other Chinese enterprises' practices. Aquila is 50% owner of the Australian Premium Iron JV that owns the West Pilbara project. The other half is owned by resources investor AMCI Group and South Korean steel giant POSCO.
Mr Wu said that Baosteel expects to build a low cost, direct shipping ore mine by 2018 that will be profitable even if the global iron ore market remains in oversupply as it is now. API is a DSO mine, which can directly ship, so from the competitiveness side it's quite different from other mines.
Direct shipping ore mines are cheaper to develop as the ore can be shipped as is. In contrast, miners digging magnetite ore, like CITIC Pacific at the Sino Iron project, have to build huge plants to extract iron before it can be exported.
The bulk of the AUD 7.4 billion capital cost of the West Pilbara project estimated in 2012 stemmed from the port and rail at AUD 4.6 billion. Aurizon, now in control of the infrastructure, sees those costs falling sharply.
Mr Lance Hockridge CEO of Aurizon said that “Costs on one of its rail projects in Central Queensland, due for completion in roughly the same time frame as the West Pilbara project, have dropped 40%. If the port and rail component of West Pilbara fell by the same amount, that could bring the infrastructure cost down to about AUD 2.8 billion.”
He said that "We can't quantify it at the moment. But our expectation is that the numbers will be very materially different, i.e. better, than the ones that were anticipated in those 2012 numbers.”
Source – Reuters
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