On the MinRes - Baowu Project
Chris Ellison’s Mineral Resources has pulled the trigger on a $3 billion iron ore project with the backing of China’s biggest steelmaker, state-owned Baowu, in a sign Beijing is still willing to invest in Australian mining despite tensions with Canberra.
The decision to press ahead with the Onslow Iron Project, through joint venture vehicle Red Hill, will open up a major new iron ore province and associated port in WA’s West Pilbara, on the doorstep of Australia’s iron ore giants Rio Tinto, BHP and Fortescue Metals Group.
It comes despite MinRes - the company that Mr Ellison built from scratch over three decades - revealing that its full-year results had taken a big hit from a sharp fall in prices for the steel-making ingredient.
The joint venture vehicle involves MinRes (40 per cent) along with Baowu-controlled Aquila Steel, South Korea’s POSCO and US company AMCI (60 per cent).
AMCI said the “sleeping giant” of iron ore projects in the Pilbara had finally awakened.
Onslow is the key plank in MinRes’ plans to go from producing about 20 million tonnes of iron ore a year from operations in WA to 90 million tonnes over the next five years.
The Onslow project alone will require 1100-1200 workers in the construction phase and a full-time workforce of 700 once operational.
Mineral Resources executive chairman Chris Ellison. Philip Gostelow
The $12.3 billion company has more than 5000 employees and estimates it will need an additional 3500 over the next few years under iron ore and lithium growth plans.
The Red Hill joint venture partners are targeting production of 35 million tonnes a year from stage one of the Onslow project and eyeing first shipments as early as December next year even with MinRes, which makes most of its earnings from mining contracting, yet to nail down some of the approvals.
MinRes will own all off-mine site infrastructure, including a 150-kilometre-long private road for giant trucks to haul ore to the coast and port facilities that will include transhipper wharfs.
Baowu will buy 50 per cent of the MinRes share of production with an option to take a further 25 per cent under a life-of-mine offtake agreement.
Combined with its share through ownership of Aquila, Baowu could take nearly 29 million tonnes a year of the low cost, lower grade (58 per cent iron) product and more again from stage 2.
MinRes will earn an additional 17 per cent participating interest in Red Hill in exchange for funding capital expenditure to the tune of $1.3 billion under a loan agreement between the JV partners.
Mr Ellison, who was ranked No.7 on The Australian Financial Review’s 2022 Rich Bosses list with a fortune of $1.08 billion, said the project would stack up through commodity price cycles. The Platts benchmark price for ore with 62 per cent iron was $US105.80 per tonne last week with some analysts predicting it will fall further.
Mr Ellison said he didn’t think the benchmark price would get to the $US80 mark.
The final investment decision on Onslow was announced on Monday just before MinRes said its underlying earnings before interest, tax, depreciation and amortisation fell 46 per cent to $1.02 billion in the year ended June 30.
Underlying net profit after tax plunged 64 per cent to $400 million and revenue dropped 8 per cent to $3.4 billion.
The company, which is ramping up its lithium production in WA, attributed the weaker results to the sharp fall in iron ore prices, but Mr Ellison said the Onslow project would “future-proof” the iron ore operations against low prices.
“Onslow Iron introduces a low-cost, long-life and low-risk operation to MinRes’ iron ore portfolio, along with the largest mining services contract in Australia,” Mr Ellison said.
“The successful delivery of the project is underpinned by MinRes’ mining services innovations, which make the project economics compelling through commodity price cycles and allow us to future-proof the business against low iron ore prices.”
Sleeping giant
The iron ore industry’s sleeping giant had awoken, said Patrick Murphy, AMCI’s Australian managing director.
“AMCI is pleased to be partnering with Mr Ellison and Mineral Resources. Both our companies share an entrepreneurial spirit, and we commend Mineral Resources for having the vision and risk appetite to apply its innovative logistics solution to the West Pilbara. The sleeping giant has finally awoken,” he said.
The tenements covered by the Red Hill joint venture host 820 million tonnes of resource and 537 million tonnes in reserve.
Stage two of the Onslow project would involve the Bungaroo South and Kumina iron ore tenements and require MinRes to increase the fleet of 320-tonne jumbo road trains it intends to use for haulage and to build more port infrastructure and 20,000-tonne transhippers.
Mr Ellison said he had a long association with Baowu and the Chinese steelmaker liked the 58 per cent iron product set to come from the Onslow project.
“They are a great partner, they are a long-term partner, they are very considered in what they do,” he said.
“They like this product and they like the partnership that we have put together on this.
“The main Baowu board actually bent over backwards to work with us to get this thing into fruition.”
MinRes, which is taking part in the Albanese government’s jobs summit, has a record number of apprentices on its books and is re-training scores of people from fields as unlikely as hair and beauty to join its ranks.
Mr Ellison said in addition to training and re-training targeted immigration from nations with a similar culture to Australia was needed to tackle labour shortages.
“Australia has a low population base for what we are doing,” he said.
“We need to be importing people that have got a similar culture to Australia and have got the right education and health standards. We have to import them, or otherwise we can’t grow.”
“I know there is a willing and capable workforce overseas that wants to come to Australia and help companies like MinRes deliver our growth projects.
“But we need to make sure those skill sets align with our focus on industry-leading workplace safety and culture standards because we can’t afford to dilute those.”
