Should we allow RIO to kill the Pilbara?

That’s China’s plan. And RIO is integral to it, via Bloomie:

Rio Tinto Group is accelerating work toward potential development of the giant Simandou iron ore project in Guinea, as half-year earnings showed the steel-making ingredient dominated the second-biggest miner’s profits.

…“Under all scenarios Simandou will be developed, with or without Rio Tinto,” Chief Executive Officer Jean-Sebastien Jacques said in an interview Wednesday. “There is a huge incentive for the Chinese to make it happen now.

…Simandou is divided into four blocks, with 1 and 2 controlled by the consortium backed by Chinese and Singaporean companies, while Rio Tinto and Aluminum Corp. of China, known as Chinalco, own blocks 3 and 4.

…“We will look at all options because it is an infrastructure project and scale is important,” Jacques said. “I think it’s important for people to understand what would be the benefits of putting together 1, 2, 3 and 4.”

Rio, which has surpassed Brazil’s Vale SA as the top supplier of iron ore, could generate an additional $1 billion in annual revenue by replacing some lower-grade exports from Australia with better-quality material from Guinea, Goldman Sachs Group Inc. analysts including Paul Young wrote in a July 23 note.

It will not make a brass razoo. Why? Because the project is large and cheap enough to break the global iron ore cartel and crush prices, easily offsetting volume increases. Worse, it will be timed to arrive as Chinese demand wanes into whatever Japanifaction hell awaits it along with the inexorable rise of scrap.

This has $20 iron ore written all over it.

The preposterous position of RIO is made clear by today’s earnings release:

RIO is currently holding 30-40mt of Australian capacity off the world market to keep prices up. Then it’s going to go and invest $20bn to produce 100mt in Africa plus enable another 100mt?

I have no idea how the project could be prevented or RIO’s involvement be curtailed.

What I can say is that RIO will be investing heavily into a calamitous blow to Australian living standards and that is worthy of a debate.

David Llewellyn-Smith
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Comments

  1. Simandou will not see production for years. It faces major hurdles not least of which is the question of potential sovereign risk. If/when production guidelines are met this is unlikely to have any major impact on global supply particularly if demand inches forward. Vale probably holds a dimmer view as this high grade ore directly competes with them.

  2. China will lay waste the resources of those countries it needs to exist. So long as the dollars keep flowing into the political parties pockets and greasing their think tanks, then expect the resources of this country to be striped bare

  3. Ronin8317MEMBER

    Will Rio’s investment disappear into a puff of smoke when the current dictator kicks the bucket? Mind you, he is only 72, so there may be another 20 years to go..

  4. So pessimistic. All these African stories never seem to eventuate no matter how long you wait. Even if it does, Indian development will soak up the iron ore. And the mine will constantly have problems and strikes and sh!t. Australia is the best jurisdiction there is for mining. There’s no better. Mines actually get developed here.

    • Except India is actually a net exporter of iron ore…
      They have plenty of lower grade iron ore in Goa which if domestic demand requires – they can ramp it up.

        • Chalk and cheese – Chinese grades are around 45%, India is low-mid 50%. Also plenty of duty benefits for Indian steel mills to use domestic feed.
          Also Africa -> India is much cheaper freight wise Australia -> India or Africa -> China
          China have a pretty good track record of developing African mines (check out the DRC/Zambia etc etc)
          So yeah there’s that…..
          Australia will without a doubt be the loser when African iron ore projects come online.

  5. Failed Baby BoomerMEMBER

    Not so fast.
    RIO displayed its incompetence in dealing with third world Africa in the multi-billion disaster with Riversdale Coal in Mocambique.
    What makes anyone think they will successfully execute a multi-billion project in Guinea?

  6. Ulrike Meinhof

    Classic conundrum
    Do I remain outside the tent and piss in Or do I join the others inside the tent all pissing out?
    For the average Aussie (unless you really enjoy your yellow showers) it just doesn’t matter Rio will take a whizz and we’ll wipe off whatever splashes on us.

  7. Stewie GriffinMEMBER

    What I can say is that RIO will be investing heavily into a calamitous blow to Australian living standards and that is worthy of a debate.

    Good – nothing would help existing Australians more then having the conveyor belt that converts high commodity prices into imported aggregate demand through mass migration.

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