the australian

Fortescue says it's fine

YOU can say what you like about Fortescue Metals Group, just don't suggest for a second that the New Force has "technical problems" with the iron ore it is extracting in the Pilbara.

Fortescue executive directors Graeme Rowley and Andrew Forrest separately made contact yesterday to give me a little lesson in the geology of iron ore and the science of marketing to China.

Rowley -- one of the gentlemen of iron ore -- said Fortescue's decision to invest in machinery to reduce the alumina content of its Cloud Break ores did not mean, as we wrote on Friday, that it was mining product that contained "too much alumina".

The de-sand equipment, which will come on line at the end of November, is actually an investment in making Fortescue's product even more attractive to Chinese customers, Rowley said.

Here is his logic.

One of the issues in iron ore at the moment, apparently, is that China and Brazilian miner Vale are just not getting along. The result is that Brazil's ore is not getting into China, and the thing about Brazilian ore is that it is very low in alumina.

Now, Rowley says, Australian fines are generally higher on the alumina scale than Brazil's. The seriously cheap stuff from India is higher again in impurities such as alumina. The end result is that the mills make an international blend of fines products. The lower your alumina content, the greater your share of that blend.

Fortescue's current contract for alumina content is 0.3 per cent either side of 1.9 per cent. Rowley says the average spec on the 11 million tonnes or so Fortescue has so far sold to China is 2.2 per cent. He reckons BHP Billiton's average spec would be 2.6 per cent.

What Fortescue was trying to do now, said Rowley, was drive its product down to the mid-point of its spec, which is 1.9 per cent, to make it more attractive to customers keen to secure long-term supplies of low-alumina content ore.

If you can reliably hit 1.9 per cent, the mills are likely to put maybe 20 per cent of your material into their blend whereas, with 2.2 per cent alumina, you would make up only 12 per cent of their blend.

Oh, I should mention that the problem with too much alumina is that it makes the sintered fines product too viscous.

"What we are trying to do is chase more market share," Rowley said.

"That is why we have the port shut in, that is why we are commissioning the de-sand. In our rocket fines, we already have a product customers prefer. Now we are going to make it more attractive."