article in the australian: china ore discovery

Iron Ore Discovery. Apologies if this is posted elsewhere. Couldnt see it on the FMG site.


Chinese ore find may affect exports
June 25, 2009
Article from: The Australian

AS negotiations between Chinese steel mills and Australian iron ore producers become increasingly fractious, China claims to have uncovered a giant iron ore deposit that may reduce its reliance on imports.

China News Agency reported a deposit with reserves of more than 3 billion tonnes of iron ore, the biggest in Asia, had been found in the country's northeastern province of Liaoning.

Crucially, the Dataigou deposit, located near Benxi city, could reduce China's dependence on imports from Rio Tinto, BHP Billiton and Brazil's Vale. China, the world's biggest buyer of iron ore, has rejected a 33 per cent price cut in contract iron ore prices offered by Rio this year and called for prices to drop by as much as 45 per cent.

At the reported three billion tonnes, the deposit is better than the reserves of either BHP or Rio in the Pilbara region of Western Australia. Earlier this month, BHP and Rio announced a $US116 billion merger of their Pilbara operations -- a deal attacked by Chinese steel mills as "monopolistic".

ANZ senior commodity strategist Mark Pervan said the new discovery could become "a low-cost operation for Chinese supply". He said reported iron contents grades of 25-62 per cent were high by Chinese standards, which typically produces mines with 20-40 per cent ore.

But, in global terms, "that's not very high grade. Brazilian ore has a grade of between 65 per cent and 70 per cent," Mr Pervan said.

BHP and Rio operations also boast grades above 60 per cent.

China has been forced to rely more heavily on high-quality imported iron ore rather than the lower-grade ore produced produced locally, with many mines in the country closing down over the past 12 months.

"Even existing mines, many large ones, have had their production suspended now they are less competitive than imported ore from Australia, Brazil or India," said Wang Chen, analyst at Custeel.com, an iron and steel information website affiliated to the Chinese Iron and Steel Association.

CISA is locked in negotiations with BHP, Rio Tinto and others in an effort to set a new iron price benchmark by June 30. China wants a price cut of 40 per cent or more from last year's price, a better deal than mills in Japan and South Korea recently signed.

In an article yesterday on business website Caijing, CISA chief Shang Shanghua said he would continue to resist pressure to sign a new iron ore contract despite an agreement between Brazilian miner Vale and leading global steelmaker ArcelorMittal.

Mr Wang said the latest discovery "won't have much impact to the current market or to the iron ore negotiations". "Even if it's decided to exploit this deposit, who will invest ... how much will this cost? Many factors are uncertain," he said.

China has extremely restrictive rules about foreign investment in its mining sector and both BHP and Rio have failed to build their business there in spite years of trying. Despite pumping money into exploration, foreign companies are not guaranteed a mining licence for any deposits they may discover this way.

Additional reporting: Bloomberg