Ferguson warns of mine closures
Relentless iron ore expansion by BHP Billiton and Rio Tinto could lead to the closure of other West Australian iron ore mines, according to former federal resources minister Martin Ferguson, who now heads billionaire Kerry Stokes’ resources business.
But Mr Ferguson, who is group executive director at Mr Stokes’ Seven Group Holdings, which owns the WesTrac mining supply business, says there is no role for governments to try to rein in production to hold up prices.
Speaking to The Weekend Australian in Melbourne, Mr Ferguson said it was in BHP and Rio’s interests to expand their low-cost mines to reap the benefits of more than $US40 billion ($58 billion) of mine, port and rail expansions in the past decade.
“Clearly it’s going to put pressure on some of our mid-tier and some of our overseas competitors; you can’t rule out closure of some iron ore mines in WA, the same way in which we saw coalmines closed or mothballed on the east coast in the past two years,” he said. “You’d expect BHP and Rio and (Hancock Prospecting’s under-construction project) Roy Hill to be able to work their way through it, but I am worried about some of the mid-tiers.”
Iron ore prices have slumped to below $US80 a tonne, from $US135 at the start of the year as BHP, Rio and Fortescue have continued to put iron ore on to an already oversupplied market.
BHP and Rio’s low all-in costs to China of between $US45 and $US50 a tonne mean they will continue to make good margins at current prices, but companies like Atlas Iron and Arrium are starting to struggle at these prices.
If prices fall much further, they may even start to affect Fortescue’s Metal Group’s ability to pay back debt.
The slumping prices, which have eaten into West Australian budget forecasts that were based on $US100-plus iron ore prices, led WA Premier Colin Barnett to this week call for BHP and Rio to pull back expansions or face the threat of higher royalties to make up for lost state revenue.
Mr Ferguson said governments should not intervene. “There’s no role for government to try to be trying to set price or determine the maximum capacity that an individual company can produce.
“Our position has got to be: the market will sort it out, the same way it was when China lectured us about higher iron ore prices and said we should be hands-on to make sure they buy our iron ore at the lowest possible cost — we always had a view it’s got to be hands off.”
In a further sign price pressure may remain in the short term, both BHP and Rio this week said state-owned Chinese iron ore production was not being reduced despite the fall in prices.
China’s 140 million tonnes of state-owned production continued to run at full capacity, according to BHP, while Rio iron ore chief Andrew Harding told analysts that this supply was not expected to leave the market at any price.
