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Gaines sees little global iron ore production growth

Fortescue Metals Group boss Elizabeth Gaines has hosed down concerns that the revival of Brazilian producer Vale or China backing development of the Simandou deposit in west Africa will crimp Australia’s economy-defining iron ore exports.

Ms Gaines told the Australian Shareholders’ Association conference that Simandou was a very complex project and its likely development was coinciding with a drop in China’s domestic iron ore production.

The Fortescue chief executive sees the market conditions that have pushed up iron ore prices remaining in place for some time, despite China’s recent efforts to pull them back from record levels.

She said there was strong and growing demand from Chinese steel makers while in the rest of the world steel-making was returning to pre-pandemic levels.

On the supply side, Ms Gaines said there was little on the horizon in terms of extra tonnes with most producers investing in replacing depleted mines.

Asked about the fraught relationship between Beijing and Canberra, Ms Gaines said Australia could not afford to take the iron ore trade for granted despite China relying on Western Australia’s Pilbara region for 60 per cent of its supply of the steel-making ingredient.

“We can’t be complacent. Australia needs to also recognise the importance of that trade relationship to our economy,” she said.

Simandou likely to be developed
Ms Gaines said Fortescue was advocating with government for a stronger relationship with China.

However, Fortescue does not view Simandou as the same level of threat to low-cost iron ore producers in Australia as some industry analysts.

“Simandou has been talked about for a long time. I probably share the view that Simandou will be developed this time around,” she said.

“It is a very complex project. It is 620 kilometres of rail through difficult terrain. I think there is at least a dozen tunnels, you have got to develop port infrastructure as well.”

Ms Gaines said Fortescue viewed it as a project that would take five to seven years to develop, with estimates of production varying from 50 million to 100 million tonnes a year.

She said it was the kind of incremental supply increase needed to meet increasing demand from steel makers and a drop in iron ore production in China from about 200 million tonnes a year as its mines were depleted.

A Chinese, Singaporean and French consortium, SMB-Winning, is committed to spending $US14 billion ($18 billion) on developing blocks one and two for the Simandou deposit in Guinea.

Rio Tinto and partner Aluminum Corporation of China are looking at developing blocks three and four. Rio CEO Jakob Stausholm has said he does not see this as necessarily negative for the company’s Australian iron ore business, because there was a need for replacement mines over the next decade.

Ms Gaines said it appeared Vale was rightly focusing on environmental and safety issues almost 2½ years on from the Brumadinho dam disaster that saw 90 million tonnes stripped from global seaborne supply.

The mid-point of Vale’s guidance for this year is 325 million tonnes, still well short of the 400 million tonnes it targeted before Brumadinho.
Source: Australian Financial Review

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