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April 10th, 2013 
Peter Nolan
Updated
Miners of magnetite iron ore have been offered a royalty concession scheme in a bid to expand the fledgling industry.
But, will it work when the past year has seen miners encounter wildly fluctuating prices that have hit their bottom line?
The Premier Colin Barnett announced the royalty rebate policy at the opening of WA’s first magnetite iron ore mine, Karara, in the Mid West.
It’s a measure he hopes will encourage widespread development in the low grade iron ore sector.
“I want to send out a message to the magnetite industry, to China and other trading partners, that Western Australia supports your investment,” he said.
“We will work with you to ensure these projects get established on firm ground from day one and certainly by the end of the year are fully operational.”
Miners who apply for the rebate will receive up to a 50 per cent discount on royalties paid during the first year of operation.
After that, the royalty fee will return to the normal rate of five per cent.
Karara’s joint venture operators, Gindalbie Metals and Chinese company Ansteel, will be the first to benefit.
Mining veteran George Jones, who until Tuesday was the head of Gindalbie Metals, says it’s a helpful measure in an economic climate which is only going to get tougher for magnetite producers.
“It’s just got harder, there are a lot of reasons for that, changes in tax laws, the pressure in the industry on building and operational costs,” he said.
“Sentiment in the equities market has changed, resources enthusiasm by investors has now diminished and bankers are finding it very difficult to fund projects so it is getting tougher to start new projects.”
The Premier says the amount of money the miner receives back will depend on a case-by-case basis, depending on how much iron ore a mine produces and what price it sells for.
“For the Karara mine, our best guess is the project will pay $15 million in royalties, in it’s second year it will pay a full $30 million.”
Who benefits?
The royalty concession is on offer to all magnetite miners across the state.
It may seem like a generous handout to a struggling industry but many miners are unlikely to benefit from the scheme because it will expire before they’re in production.
Mr Barnett has put a three year timeframe on it, perhaps to send a clear message to the industry.
“Get on with your job,” he said.
He says he hopes the move sends a strong message to China.
“I just want to give a very clear signal that the West Australian Government supports the development of these resources in the Mid West and supports Chinese investment,” he said.
Citic Pacific Mining appears to be the only other miner which could use the rebate within the deadline, for its Sino Iron Ore project in the Pilbara.
The Magnetite Network’s Megan Anwyl says the policy’s lead time must be extended if it is to have any real benefit.
“There needs to be a much longer timeline for this incentive to apply so that investors can expect royalty rebates during the start up phase,” she said.
“The Premier has indicated that this might occur so the network will keep lobbying him so WA has the most competitive royalty regime in Australia.”
Key driver
A key driver behind the policy is to get more Mid West iron ore miners up and running to help push the development of the troubled Oakajee Port and Rail project.
But, many of the magnetite projects are years away from production and unable to meet the three year deadline.
The Karara mine, one of the three foundation customers needed for OPR, is the first to proceed but will others follow?
Mr Jones says it is getting tougher to set up mines and investors are wary.
“China is very disappointed in the amount of money they’ve invested in iron ore in Australia with the amount of production that’s flown to China from it,” he said.
“So, they’ve stopped consideration of new projects until some of them start working and this is the first cab off the rank.”
While the Premier admits the measure isn’t enough to get Oakajee off the ground, he says it’s a good start to shoring up future Chinese investment.
“It won’t be enough by itself but, from my dealings with China over a long period, nearly 20 years, I think showing respect for what China does is important,” he said.
“At the moment, some senior officials from State Development are in Beijing negotiating over Oakajee, and I will be going to China shortly.”
While Gindalbie Metals doesn’t need the Oakajee development for at least five years, it will for future growth.
“We’re able to battle through with Geraldton for now, but to get to stage three and four we’ll need Oakajee,” Mr Jones said.
“The next big mine off the bat in the Mid West, in my opinion, is Extension Hill.
“They can get their initial tonnage out of Geraldton as well, but to expand to where they need to be, they need Oakajee.
“I would say we need Oakajee in the next 8 years, it will take four years to build so we need to get a move on with it now.”
Capital costs
The biggest hurdle facing magnetite miners is the huge capital costs involved with building a plant to process the ore.
The main difference between magnetite and hematite ore is that magnetite must be processed whereas hematite can be dug up and directly shipped to steel mills overseas.
Ms Anwyl says that’s been the biggest deterrent for iron ore companies in the past but now that hematite ore quality is lowering, attention is turning to magnetite.
“WA hematite or direct shipping ore (DSO) is declining in value so attention is turning to these huge magnetite mines which have a very long mine life,” she said.
“It actually takes less energy to make steel from magnetite than it does from hematite so, as global carbon trading and pricing schemes develop, we’re confident magnetite can only increase in desirability for export markets.
Patersons Securities’ Rob Brierley says magnetite ore generally attracts a premium compared to hematite ore but the additional costs involved with processing the magnetite means profit margins are similar.
“Capital costs and production costs are higher because more power and water is required,” he said.
“Generally, magnetite concentrate sells at a premium to hematite ores but this premium seems to fall short of that required to compensate for additional costs.”
Mr Jones says the key to developing the region is gaining Chinese backing for future projects, which he says is reliant on proving WA can provide the Asian powerhouse with a steady supply stream.
He says getting the Karara mine to production was one of the biggest challenges of his career.
“It’s a highlight, you’re looking at a product that’s worthless in the ground, to be able to process it and turn it into a premium product, I get a buzz out of that,” he said.
Topics:
mining-industry,
perth-6000,
geraldton-6530
First posted
Source Article from http://www.abc.net.au/news/2013-04-10/magnetite-miners-concession-a-bid-to-boost-industry/4621658
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