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Magnetite Project's $5 Billion Blowout
By: Rebecca PARISH

Published: 02/11/2012

In mid-2006, CITIC Pacific bought a 25 year lease from self-made billionaire Clive Palmer that gave the company the right to mine 2 billion tonnes of magnetite with the option of 4 billion more.

The joint venture between Hong Kong-based CITIC Pacific and China's state-owned Metallurgical Group Corporation is located at Cape Preston, around 100km from Karratha.

Since 2006 the Sino Iron project has suffered major setback after major setback and has blown initial budget figures out by an astonishing $US5 billion.

Initial estimates in the Sino Iron’s infancy suggested the project would cost the group around $US2.5 billion. Now almost two years on from initial prodcution guidance, that figure sits somewhere around the $US8 billion region.

The project will mark the largest of it’s kind in Western Australia once up and running and is one of two new magnetite projects currently underway in the state.

WA Magnetite Projects. Image Courtesy of MageNet

The second project is The Karara Iron Ore Project, a joint venture between Gindalbie Metals and Chinese steel producer, AnSteel.

Michael Weir, Manager of Corporate Affairs and Investor Relations at Gindalbie Metals said the Karara Iron Ore project is on line to ship it’s first magnetite ore at the end of the year.

“We’ve yet to start production of magnetite, we’ll be producing the first magnetite in early November and we probably wont have a shipment out until around the end of the year when we’ve built up sufficient stocks.”

There are two types of iron at the fingertips of mining companies in the mineral rich Western Australia. But for the most part, only one type of iron has been mined – hematite, which is also known as a Direct Shipping Ore (DSO).

The difference between the two minerals is the chemical composition. Hematite can be taken straight out of the ground, crushed, screened and blended, then shipped for steel production. The iron grade of the hematite product usually sits between 55 and 65 per cent.

Magnetite however comes out of the ground as a very low grade product. But through a complex extraction process the grade of the mineral can raised to about 70 per cent.

WA Magnetite Projects. Image Courtesy of MageNet

Mr Weir explains: “Previously iron ore has just been dug up and shipped out. The industry has often copped a deal of criticism for that because we were not adding value to our raw materials... That adding of value has kept value in Australia in terms of jobs and higher export revenue.

Megan Anwyl set up the Magnetite Network (MagNet) in April 2009. The network has seven members. Now Executive Director, Ms Anwyl explains why she set the network up.

“I’m a full time registered lobbyist and I run it part time, the whole point is to bring magnetite companies together. The website has seven current members and it’s there so that we can influence public policy and regulatory outcomes and partly just to educate the community generally as to what magnetite is and benefits for Western Australia.”

Mr Weir spoke in depth about why CITIC could be facing such delays.

“Well I guess it’s just worth remembering these are massive projects, our total investment in this project is going to be $3 billion by the time we finish. Our environmental approvals took a couple of years to start with to get there.

"These projects they take four to five years from conception to actually being able to deliver them. There are enormous amounts of government hurdles that are in the way of projects like this.”

Mr Weir also said: “Just the construction difficulties that come with such a major project. You’ve got infrastructure, as well as the mine site and all of these things need to come together at the same time, hence why you get some delays in various areas.”

Due to overall costs and the time it takes to mine and refine magnetite, many companies overlooked the mineral and settled on hematite.

According to MagNet, Western Australia’s newest magnetite minesites will offer Australians an abundance of employment opportunities. CITIC Pacific Mining’s Sino Iron project will offer around 4000 jobs in the construction phase with 1000 follow on jobs once production begins, while Gindalbie Metals Karara joint venture will offer around 2000 jobs in the construction phase one and around 500 follow on jobs.

CITIC Pacific claims on its website: “The Sino Iron project is focused on delivering a world class magnetite iron ore development which will add value to the Western Australian economy through significant downstream processing, employment, community benefits and international technology transfer while balancing social and environmental considerations.”

Iron Ore is one of Australia’s largest export commodities with Rio Tinto shipping around 200 million tonnes a year, with hopes to increase that figure in the coming years.

With high grade hematite exports making up around 96 per cent of Australia's ore exports, the magnetite industry has a long way to go to compete with that. But with other companies including Fortescue Metals Group (FMG) are looking into magnetite projects, it may well be the way the Western Australian mining industry is headed. FMG is developing the North Star Magnetite Project 100kms south of Port Hedland.

Gindalbie Metals' Michael Weir said the Karara Iron Project will be a big player in the Western Australian magnetite industry.

"The Karara mine, if you look at it in isolation is a major mine in its own right. It has the potential in terms of its size to produce up to 30 million tonnes a year for a mine life of 30 odd years.

"That individually is as big as some of the individual mines in the Pilbara that are operated by BHP and Rio Tinto. So the Karara Project in isolation is a very major development and the biggest and first of its kind in the mid west which is very exciting."