Iron ore prices: a story of ups and downs

BHP Billiton approved today a US$822 million (BHP Billiton share US$698 million) investment for the development of its Orebody 24 mine, located approximately 10 kilometres north-east of Newman, Western Australia. Orebody 24 is a sustaining mine to maintain iron ore production output from the Newman Joint Venture operations. The new Orebody 24 mine will have a capacity of 17 million tonnes per annum (100 per cent basis) and will include the construction of an ore crushing plant, train loadout facility, rail spur and other associated support facilities. Initial mining from Orebody 24 will start in the second half of calendar year 2012.

Yesterday's announcement by Australian PM Julia Gillard to consider lifting the ban on uranium sales to India is raising eyebrows at one of the country's largest iron ore producers. News.com.au reports Fortescue Metals (ASX:FMG) chief executive Neville Power questioning whether the proposed sales would benefit BHP's Olympic Dam uranium mine in South Australia: "You would wonder," Power said yesterday at Fortescue's Port Headlands wharf in Western Australia.

The price of iron ore spiked to a one-month high today, with benchmark Australian iron ore rising to $140 a tonne. FT (sub required) reports that Chinese steelmakers, which halted purchases last month amid concerns about an economic slowdown and tight credit conditions, are able to obtain import financing. That, combined with higher steel prices, is boosting iron ore prices.

The Chinese General Administration of Customs reported that the country's iron ore and concentrates imports were 49.94 million tonnes in October, down 17.5% from 60.57 million tonnes in September 2011. The spot price for iron ore arriving at China’s Tianjin port increased to $134.40 a tonne last week from $116.90, the lowest in almost two years, on Oct. 28. Most analysts believe do not expect prices to return to the historic highs above $180 seen just two months ago thanks to the volume-driven market strategy of the big three producers and China's plans to increase its domestic supply by 40% over the next four years and up its investment in mines abroad.

While peace in Afghanistan still looks to be a utopian dream, AFP reports that developing nations like China and India are eager to make resource deals in the troubled country even before the guns fall silent: While an end to the fighting seems remote for now, mining lots are being quickly parcelled out among Afghanistan's resource-hungry neighbours, potentially sparking a new "Great Game" for control of its battle-worn ground. According to mining ministry documents seen by AFP, Afghanistan is planning to sell extraction rights for up to five mines every year until the departure of the last foreign combat troops in 2014 -- a rattling pace, say experts.

Mega-miners BHP Billiton and Rio Tinto on Thursday learned the price of their planned expansions in the Australian Pilbara: increased iron ore royalties to the West Australian government. Sydney Morning Herald reports the WA government will reap $1.9 billion more in mining royalties over three years after deals were reached with BHP Billiton and Rio Tinto: Premier Colin Barnett said the royalty rate for fines iron ore - grains smaller than 10 millimetres - would increase from 5.625 per cent of sale revenue to 6.5 per cent from July 1, next year and to 7.5 per cent from July 1, 2013. In return, mining giants BHP Billiton and Rio Tinto would be able to expand their projects in the Pilbara, worth an estimated $30 billion.

Iron ore prices have turned around after crashing 30% in October, but longer term the outlook is not rosy for smaller players thanks in large part to the aggressive go-to-market strategy of the big three.

Bloomberg reports Rio de Janeiro-based Vale SA, the world’s largest iron-ore producer, said prices for the raw material have stabilized and are recovering from “rock bottom” levels as a result of lower-than-expected production and strong demand from China, India and South America. Iron ore for immediate delivery has gained 8% to $126.30 a tonne since reaching its lowest level in almost two years at the end of October. During the month iron ore prices crashed almost 30% forcing the big three – BHP, Vale and Rio Tinto control nearly 70% of the 1 billion tonne annual iron ore seaborne trade – to renegotiate quarterly contracts with Chinese buyers to bring values more in line with the spot price.

The CourierMail reports fly-in, fly-out "working girls" travelling from as far away as New Zealand to the remote mining regions of Queensland and Western Australia are making as much as $2,000 a day from mine labourers who have lots of cash but are deprived of female company for weeks on end. Fifo prostitution is just the latest concern for rural communities in the country's mineral-rich states who are becoming increasingly unhappy about mining firms like BHP that set up self-contained mining towns cut off from locals or let miners fly in and out without ever investing in existing communities.