Tipping point? Inflation creep at Australia’s mines to erode margins

An $85 billion expansion of the iron ore industry in Australia will not depress the price of the crucial steelmaking ingredient because the major producers will simply curtail their outputs. Martin Place Securities head of research Greg Burns told AAP the current wave of Australia-wide expansions that could effectively double current capacity of 465Mt to one billion tonnes by December 2016 will not have an upward effect on prices because the major producers will simply pull back on production to tighten up supply. Nor will some of the planned projects get off the ground, he predicts. Sky News reports:

Despite order books that are full and robust commodity prices, Rio Tinto says that customer sentiment is now more cautious and physical markets are softer than they were six months ago. Executives from Rio Tinto, one of the world's largest diversified miners, voiced their concerns at an investor seminar in London and New York on Tuesday. The company is finding that customers are concerned over the health of the OECD economies and persistent volatility in financial markets.

Australia cut its forecast for coking coal production in fiscal 2012 as recovery from natural disasters takes longer than expected but lifted its projection for iron ore production a touch.

Reuters reports BHP Billiton will face work stoppages at all its Queensland, Australia coal mine operations next week ahead of an employee vote on a contract, a workers union said on Monday. The world's largest miner has reached an impasse with the Construction Forestry Mining and Energy Union (CFMEU) over wages and job security provisions; the union approved work stoppages at mines operated by the BHP Billiton- Mitsubishi Alliance (BMA) in June.

Adelaide Now reports BHP Billiton wants to "future-proof" its massive Olympic Dam project, including using driverless haulage trucks and this week put out a recruitment ad for an executive to oversee the high-tech initiative. The system would mean operators can be in a control room on the site or even in the comfort of a city office hundreds of kilometres away. BHP Billiton is in the final stages of the approval process for the $30 billion expansion of its existing underground operation at Olympic Dam to create a new open pit mine that would be the worlds biggest – trucks will haul overburden 24/7 for five to six years just to reach the ore body. The combined operations would mine 72 Mt ore per year and would produce 750,000 tonnes refined copper, 19,000 tonnes uranium oxide, 800,000 gold ounces and 2.9 Moz of silver per year.

The Daily Mercury reports Rio Tinto executive director Sam Walsh says the mining industry has to live with the new resources tax as the best deal that could be done with the current government. The final tax rate had been reduced from 40% to an effective 22.5% rate in the minerals resource rent tax (MRRT), he told the meeting organised by the American Chamber of Commerce in Australia. At a breakfast meeting in Perth on Tuesday, Mr Walsh defended his company's role in closing the tax deal, saying junior miners left out of final negotiations now have a chance to have their concerns heard. On top of the MMRT, Australian miners also have to contend with a proposed carbon tax set to kick in mid-2012.

India infrastructure giant GVK on Saturday said it would pay $1.3 billion for Australia's Hancock Prospecting coal, rail and port projects and spend a further $10 billion developing them as it lines up energy supplies for upcoming power plants. Hancock's owner and richest woman in the world, Georgina Hope Rinehart will join GVK Power's board and retain a 21% stake in the mines. Rinehart, 57, is predicted to become the world’s richest person as the coal projects and Hancock's massive 100%-owned iron ore mines start producing by 2014 and earn her annual profits of as much as $10 billion. The so-called queen of iron ore who inherited a debt-ridden mining company from her father 20 years ago had already doubled her wealth from 2010 before Saturday's deal.

Western Australia’s manufacturing sector is losing nearly 150 jobs per day as workers chase high wages in mining.

Encouraged by test work that revealed extraction potential using its own technology at one of the world’s largest known glauconite deposits, Perth-based Potash West on Wednesday expanded it exploration tenure by almost 40% to 2,905km² in Australia's wheatbelt. The company raised $6 million on the Sydney bourse in May this year hoping to become the first Australian firm to break into the lucrative potash market dominated by about 10 mainly Canadian companies. Global potash prices currently average $500 a tonne, up more than 40% from 2008-recession lows.