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 New generation Western Australian
iron ore 2006–2016 – strategic
insights far beyond the Pilbara?
L Barrere1, A Trench2,4,5 J P Sykes3,4,6 and R S Davies4,7

ABSTRACT
Western Australia (WA), alongside Brazil, has remained at the forefront of the global seaborne
traded iron ore market for over 40 years. Despite this apparent stability and strong market
position, WA continues to face strong external international supply-side competition, mainly from
Brazil, but also periodically from often marginal, non-traditional sources of iron ore. Additionally,
WA iron ore supply has undergone significant decadal change internally, both of an evolutionary
(brownfields expansion) and revolutionary nature (major new greenfields projects). Since 2006, a
new generation of WA-focused iron ore explorers, developers and producers have emerged.
The majors, BHP Billiton and Rio Tinto, have expanded mine production to record levels and
the Roy Hill project is now approaching nameplate capacity. Fortescue Metals Group (FMG)
is, however, the largest new market entrant of the last decade, delivering upon their vision of
becoming the ‘new force in iron ore’. Unlike most of the other new WA market entrants, FMG’s
operations are substantive. Most of the other smaller, new WA iron ore miners have struggled
during the period of falling prices, though it is worth noting that collectively they have made a
material supply-side impact during the price boom – typical of marginal supply. Finally there have
been some contributions from new magnetite projects, however, the delivery and economics of
these projects have not met expectations.
In this paper, we touch briefly upon the key global market changes of the last decade, namely
China-driven demand growth and the changes to the pricing mechanisms for iron ores – before
reviewing the rise in WA iron ore supply in response to these markets. We finish by focusing on
the most significant WA-focused supply-side development of the last decade, the rise of FMG as a
major new supplier and the strategic situation that facilitated its rise. The unprecedented China-led
rise in iron ore prices felled many traditional barriers to market entry into an oligopolistic industry,
allowing many new market entrants (in WA and around the world). However, the downturn in
iron ore prices resurrected these barriers to entry, with only FMG (thus far) breaking the entry
barrier with significant scale. Difficult corporate decisions have been forced upon the smaller WA
iron ore miners who, in some cases, will now struggle to further expand, or indeed continue to
operate in the longer run.
The changes that have taken place over the last decade of WA iron ore production hold insights
for other emergent mineral commodity exports from the state. Successful market entry, even when
industry barriers are high, does not always require an immediate low-cost production assumption
alongside a strong balance sheet. FMG could see a new market, within an established commodity
market, target an appropriate and new product at it, overcome temporarily-felled barriers to entry
in infrastructure and finance, then innovate and aggressively cut costs ensuring it was behind the
barriers to entry when they rose again after the price boom.

1. Managing Director, Gryzlly Resources Pty Ltd, Perth WA 6009. Email: l.s.barrere@gmail.com

2. Business School, The University of Western Australia, Crawley WA 6009. Email: allan.trench@uwa.edu.au
3. Business School, The University of Western Australia, Crawley WA 6009.
4. Centre for Exploration Targeting, School of Earth Sciences, The University of Western Australia, Crawley WA 6009.
5. FAusIMM, CRU Group, Chancery House, London WC2A 1QS, UK.
6. MAusIMM, Director, Greenfields Research, Hunters Chase, North Yorkshire HG3 3HA, UK. Email: john.sykes@greenfieldsresearch.com
7. Alto Metals Ltd, Subiaco East WA 6008. Email: samd@altometals.com.au

IRON ORE CONFERENCE / PERTH, AUSTRALIA, 24–26 JULY 2017 375

L BARRERE et al
INTRODUCTION
Australian iron ore, and more specifically Western Australian
(WA) iron ore, has sat at the forefront of the China-led mining
boom of the early 21st century. From exports of around 170 Mt
in 2000 (Minerals Council of Australia, 2015), Australian iron
ore exports are anticipated to reach 895 Mt in 2017 (CRU
Group, 2017). Australia is now the leading supplier to the
global seaborne traded iron ore market (Minerals Council
of Australia, 2015). Along the way, iron ore prices ran from
under US$25/t in 2000 to US$190/t at their peak in 2011,
overcoming the brief market challenges of the 2008–2009
Global Financial Crisis (Humphreys, 2015) and subsequent
price downturn of 2014–2015. At the time of writing prices sit
around US$80/t CFR China (62 per cent Fe) (Figure 1).
Indeed, China’s unprecedented demand growth in iron ore
and other minerals feedstock prompted an entire Remaking of the
Mining Industry (Humphreys, 2015). The evolution of the iron
ore market over the last decade is of course far more complex
than merely an increase in demand from China however.
The response of existing and new producers offers up many
supply-side case studies of interest. The microeconomics
of the iron ore sector continues to evolve apace. Record
prices allowed high-cost Chinese production and several
‘non-traditional’ producer countries to enter the market in
order to satiate demand (Astier, 2015), with this higher-cost
production in turn then displaced (in part) by lower-cost new
production of seaborne traded tonnes. Export tonnes from
what might be termed the ‘non-traditional’ producer nations
included Honduras, India, Indonesia, Iran, Kazakhstan, Laos,
Liberia, Malaysia, Mauritania, Mexico, Mongolia, Myanmar,
New Zealand, North Korea, Peru, Philippines, Russia, Sierra
Leone, Swaziland, Turkey, Ukraine, UAE, USA, Venezuela,
and Vietnam (Atlas Iron, 2014).
CHINA-LED MARKET GROWTH
In 2000, Chinese imports stood at just 70 Mt, equivalent to
15 per cent of seaborne trade, compared to 125 Mt for Japan.
Chinese imports tripled within the next four years to over
200 Mt by 2004, and then doubled once again to approach
450 Mt by 2008 (Humphreys, 2015). The global financial crisis
(GFC) provided only a brief interruption to market growth,
with GFC-linked Chinese economic stimulus driving demand
to a 2014 peak of 1.29 Bt (CRU Group, 2017). For 2016 iron ore
FIG 1 – China import iron ore fines 62 per cent Fe spot (CFR Tianjin port), US$/dry metric tonne (Source: Indexmundi, 2017).
376
consumption in China sat at 1.25 Bt. Whilst Brazil, through
Vale, remains Australia’s largest competitor in the seaborne
iron ore market, with iron ore deposits comparable in quality
to the market-leading Pilbara assets, numerous other countries
responded to the China-led market opportunity. The number
of countries producing more than 10 Mt/a rose from 11 to 17
between 2000 and 2015 (Minerals Council of Australia, 2015).
China responded with increased domestic iron ore
production too. That said, Chinese mines and accompanying
processing plants represent smaller facilities mining low-
quality ores with significantly higher operating costs than
international competitors. Even with sometimes negligible
transport costs however, Chinese iron ore production costs
still dominate the fourth quartile of the industry cost curve
(Astier, 2015; CRU Group, 2017).
CHANGING PRICE MECHANISMS
FOR IRON ORES
A significant market development of the past decade has been
the rapid evolution in both pricing and sales mechanisms
for iron ore with ever shorter-term ‘spot’ contracts and
index prices becoming standard. The daily price quotations
that operate in the market now are in marked contrast to
the annual pricing mechanism that typified the market a
decade ago (eg Astier, 2015). In general, these changes have
benefitted WA producers through an ability to capture the
freight advantage to China over Brazilian producers, thus in
part the changed iron ore price mechanics also assisted the
rapid rise in WA iron ore production.
Crowson (1998) offered succinct descriptions of the pre-2010
annual iron ore benchmark negotiations to determine prices
and sales contracts. A synthesis of the benchmark system, in
contrast to the subsequent spot pricing system, forms Table 1.
The annual benchmark system itself had evolved from earlier
longer-term contracts with fixed multiyear prices subject to
agreed indexed formulae adjustments. A quarterly pricing
system then operated in 2010, reported by Vale, ‘between’
the annual benchmark pre-2010 period and the subsequent
evolution towards broader acceptance and use of daily index
prices (Wårell, 2014).
The change in pricing mechanism also included a change in
freight terms. The previous annual benchmark used a free-on-
board (FOB) reference price, whereas the current spot pricing
IRON ORE CONFERENCE / PERTH, AUSTRALIA, 24–26 JULY 2017
 NEW GENERATION WESTERN AUSTRALIAN IRON ORE 2006–2016 – STRATEGIC INSIGHTS FAR BEYOND THE PILBARA?

TABLE 1
Key differences in iron ore pricing mechanism, comparing benchmark and index prices and process.

Benchmark system (historical price mechanism) Spot price index (current price mechanism)
Annual Daily
FOB CFR
Dry metric tonne unit (dmtu) – where the $/t of a quantity of iron ore is calculated by Dry metric tonne – where the $/t of a quantity of iron ore is cited as a US$/t value,
multiplying the cents/dmtu price by the percentage of iron content reflective of the contained Fe grade (eg 62 per cent Fe)
Typically set in Japan, China or Europe Chinese port price
Agreed in the context of a long-term contract and established relationship Journalistic assessment of spot transactions
Agreed between producer and consumer Multiple players – producers, consumers, traders, speculators, banks etc
Price negotiations typically considered: Transactional summation of reported daily activity
• supply/demand
• relative financial performance of the suppliers and consumers
• need for further investment in iron ore supply capacity including cost function
Price setting was partially forward looking – ie considered outlook for next 12 months ‘Price of the day rules’
Annual price average not impacted by variation in shipping schedule Average annual price calculation determined in part by shipping schedule/rates
Benchmark traditionally covered vast majority of seaborne iron ore trade Difficult to determine extent of sales volumes covered by daily index (far less than
benchmark process)
Benchmark did not include on-sales of cargo/tonnages Spot sales data can often include multiple sales of same cargo – producer to trader, to
Chinese trader, ex stockpile to Chinese mill
Terms: FOB – free-on-board, price reference at port of origin; CFR – cost and freight, price reference at port of destination. That is, FOB prices refer to the price referenced to the port of departure whereas the
‘equivalent’ CFR price for a shipment of iron ore is higher as it includes the transport cost to the destination port.

index system uses ‘cost and freight’ (CFR). Whilst specific
arrangements can vary on a contractual basis, in the general
case for FOB pricing the seller pays for land transport from
the seller’s facilities to the port of departure and loading of the
ship, whilst the buyer typically pays for shipping, insurance,
unloading at the port of arrival and land transport to the
buyer’s facilities. For CFR pricing, in the general case the
seller pays for land transport from the seller’s facilities to the
port of departure, loading of the ship and shipping, whilst the
buyer pays for insurance, unloading at the port of arrival and
land transport to the buyer’s facilities (International Chamber
of Commerce, 2010).
The shift from FOB to CFR can impact the economic rents
earned by the buyers and sellers, as demonstrated in Figure 2.
Under the FOB-based benchmark system, a buyer would
pay differing total prices per tonne on a delivered basis if
sourcing ore from different destinations, being the FOB price
and the different shipping costs. Under an FOB price system,
the buyer can thus capture a consumer surplus – gained
from paying less for shipping from nearer producers. Such a
situation favoured Chinese buyers of Australian iron ore, and
Brazilian producers selling into China. Under a CFR pricing
standard however, the proximal seller captures the benefit
in the form of a location-based freight advantage – given the
CFR price is reflective of the highest cost of shipping (ie the
most distal buyers and sellers). CFR pricing therefore benefits
Australian producers shipping to China, over Brazilian and
other more distal producers.
The Platts’ Iron Ore Index (IODEX) daily price series is now
widely used by the industry. Specifically, IODEX:
…is published daily at 05:30 pm Singapore time – barring
weekends and holidays – that benchmarks the spot price
of physical iron ore (62 per cent Fe, 2 per cent Al2O3 and
4.5 per cent SiO2) and is widely regarded as the global
price reference for iron ore cargoes delivered into the port
of Qingdao, China. It is based upon market tenders for iron

FIG 2 – Distribution of economic rents accruing for differing costs of shipping under the free-on-board (FOB), and cost and freight (CFR) pricing systems.

IRON ORE CONFERENCE / PERTH, AUSTRALIA, 24–26 JULY 2017 377

L BARRERE et al
ore from completed transactions to inquisitive offers and
excludes outliers; data points are collected from iron ore
producers, traders and steel mills.’ (Platts, 2017)
Other notable alternative daily iron ore price services
include Metal Bulletin’s Iron Ore Index and The Steel Index’s
Iron Ore Index (TSI62).
Whilst the transition in iron ore price discovery from an
annual benchmark system, through quarterly reference prices
to daily quote prices is now largely ‘complete’, the many
differences between the historical benchmark system and
the prevailing index prices are worthy of note here. Table 1
sets out the key differences between the annual benchmark
system and the current daily price quotation system.
The evolution of the transactional marketplace for iron ore
continues to this day, notably with the growth of trading
and types of contracts available via the Singapore Mercantile
Exchange (SMX) and the growth in sub-62 per cent Fe trade.
NEW WESTERN AUSTRALIAN
SUPPLY GROWTH
Since 2000, Australia’s seaborne market share has grown from
34 per cent to over 50 per cent (Minerals Council of Australia,
2015). These authors estimate that of the approximately 450 Mt
of additional annual Australian iron ore production, around
250 Mt were needed simply to keep up with market demand.
The remaining 200 Mt represents an increase in market share
(Minerals Council of Australia, 2015). Given that Fortescue
Metals Group (FMG) reported of 169.4 Mt annual production
(FMG, 2016), the significance of that company’s market entry
in the context of Australia’s market position becomes very
clear. Globally, the ‘Big Three’ of BHP Billiton, Rio Tinto and
Vale in seaborne iron ore trade are now accompanied by a
separate ‘Big Three’ of local WA exporters, including BHP
Billiton and Rio Tinto, again, but now also FMG. Aside the
significant arrival of FMG, other developments in the WA iron
ore sector have been of lesser scale, including Initial Public
Offerings (IPOs) and a range of smaller ‘fringe’ production.
IRON ORE-FOCUSED INITIAL
PUBLIC OFFERINGS
The positive market conditions in the iron ore sector in the
early part of the 2007–2016 decade provided fertile conditions
for new market entrants. These new entrants were of two
broad types, existing iron ore plays – the ‘first movers’,
such as FMG (who had commenced an iron ore focus from
2003), who now had the opportunity to execute their plans
in a supportive market; and the ‘fast followers’ who saw the
iron ore boom and quickly developed market entry plans.
Unsurprisingly the rise in ‘fast followers’ led to many IPOs
on the Australian Stock Exchange (ASX) focused on iron ore
exploration.
Kreuzer, Etheridge and Guj (2007) summarise the IPOs
on the ASX in the period 2001–2006, who would mainly be
first movers, as the positive iron ore market signals were still
emerging at this stage. As such, these authors note that gold
(gold-only, copper-gold, iron oxide copper-gold) was the
most popular commodity choice in this period, targeted by
79 per cent of the junior floats, followed by nickel (31 per cent)
and other base metals (31 per cent), uranium (16 per cent),
platinum group metals (15 per cent), diamonds (7 per cent) and
silver (6 per cent). Commodities such as titanium, tantalum,
rare earth elements and coal were considered by 8 per cent
of the junior explorers in their study. Surprisingly iron was
targeted by only 4 per cent of the pre-2007 floats. The lack of
interest in iron ore IPOs in the early-2000s is explainable, not
378
only by the early-stage iron ore market signals at the time,
but also that iron ore is seen as a market with high barriers to
entry, and thus unattractive to small companies. The existing
oligopoly of producers had the benefit of substantial capital,
scale and infrastructure. New iron ore market entrants would
therefore have to find ways of overcoming these challenges.
Although, iron ore was not considered as a target commodity
prior to 2004–2005, after this period, and on the back of five-
year 189 per cent increase in iron ore prices (Craze and Blount,
2006), evidence a new crop of ‘fast follower’ iron ore market
entrants in WA started to emerge. Iron ore accounted for just
three per cent of minerals IPOs in 2004–2005 and 2005–2006.
For example, Atlas Iron, which listed in December 2004,
commenced life as Atlas Gold, and still retains the stock code
‘AGO’ to reflect this legacy.
Following the pick-up in iron ore IPOs in 2005 and 2006,
the next year, 2007, would prove to be the peak during this
price cycle. In 2007, 15 companies listed on the ASX with a
principal focus on iron ore, of which eight were focused on
Australian projects, including six in WA alone (Figure 3).
Some A$79.95 M was raised this year for iron ore IPOs, with
A$17.5 M focused on WA (Figure 3). The IPO market was hit
hard by the GFC resulting in no iron ore related IPOs on the
ASX in 2009 (Figure 3). Activity returned in 2010, but faded
from this year, with no iron ore related IPOs recorded on the
ASX since 2012 (Figure 3). The WA focused iron ore IPOs
from 2005 to 2012 were:
• 2005 – Accent Resources, Fe Limited, and Iron Ore
Holdings
• 2006 – Athena Resources, BC Iron, Ferrowest, Mineral
Resources Limited, and Red Hill Iron
• 2007 – Apollo Resources, Aurium Resources, Magnetic
Resources, Pacific Bauxite, Reedy Lagoon, Warwick
Resources, and Zenith Minerals
• 2008 – China Steel Australasia, Emergent Resources, and
Legacy Iron Ore
• 2010 – Rutila Resources, Sheffield Resources and Talga
Resources
• 2011 – Brockman Mining.
The fading nature of the iron ore boom was already visible in
the names and focus of the iron ore related IPOs in 2010, with
these companies beginning to focus on other more fashionable
commodities, such as minerals sands (Rutila Resources and
Sheffield Resources) and graphite (Talga Resources).
It should be noted that there are limitations to defining IPOs
strictly in terms of their commodity focus, such that any data
analysis is illustrative only. Junior explorers are famously
agile in switching strategy between commodities. That is,
the asset portfolio at listing may bear little resemblance to
subsequent corporate focus as investor support for different
commodities ebbs and flows.
A DECADE OF IRON ORE DEVELOPMENTS
WA iron ore production increased throughout the decade
2007–2016 in an unprecedented investment period for new
supply. Year-to-year market events are summarised here.
2006 – Many position for next
generation supply
The project pipeline for potential market entrants in WA was
plentiful. During 2006, seven iron ore companies listed on the
ASX. Six of these listings were operating within Australia and
five of those within WA. A total of was $42 400 000 raised
from these IPOs (Figure 3).
IRON ORE CONFERENCE / PERTH, AUSTRALIA, 24–26 JULY 2017
 NEW GENERATION WESTERN AUSTRALIAN IRON ORE 2006–2016 – STRATEGIC INSIGHTS FAR BEYOND THE PILBARA?
FIG 3 – Number and value (A$ millions) of Initial Public Offerings (IPOs) listed on Australian Stock Exchange (ASX)
per annum, broken down to highlight companies with focus on Australia and Western Australia specifically.
Beyond IPOs, other new generation iron ore companies
targeting production commencement and expansion
included Gindalbie Metals, previously a WA gold producer,
recognised the potential of their Karara tenements, 220 km
east of Geraldton in the mid-west region, in proximity to the
company’s Minjar gold operations during 2002–2003 (Trench,
Pridmore and Lau, 2006). The company underwent a strategic
shift to a dedicated iron ore exploration and development
company, selling off their gold assets. An initial direct
shipping hematite lump and fines operation as a precursor
to a magnetite concentrate (and potentially pellet) operation
was envisaged targeting 10 Mt/a production. Gindalbie
announced a 50:50 staged joint venture with Anshan Steel
in early 2006. Magnetite resources were cited as 737 Mt at
37 per cent Fe.
Murchison Metals were focused on developing the Jack
Hills iron ore project in the mid-west, 380 km north-east of
Geraldton. Jack Hills had been explored in the 1970s with a
number of potential deposits of high-grade hematite identified
(Trench, Pridmore and Lau, 2006). Previous explorers
estimated potential mineralisation of 380 Mt at 62 per cent
Fe (as a non-JORC compliant resource) of which Murchison
estimated an initial 8.5 Mt as a probable ore reserve at an
average grade of 63 per cent Fe to JORC status. Murchison
also held the Weld Range area as a potential future project
development.
CITIC Pacific reached an agreement with Mineralogy to
develop the Sino Iron project in the Pilbara as a combined
magnetite concentrate and pellet plant operation with a
requirement to develop port logistics and infrastructure.
Grange Resources advanced feasibility work on the
Southdown magnetite project near Albany in the South-
West of WA. The project was targeting magnetite concentrate
product to be converted to 6.8 Mt of pellet production.
Aquila Resources advanced exploration in the Pilbara
returning numerous ~56 per cent Fe intersections at Catho
Well and Cardo Bore over which the company held an option.
At the time, Aquila held extensive, higher profile, coal assets
in Queensland.
Small WA producers included Portman, Mt Gibson Iron
and Sinosteel Midwest (0.7 Mt), Mt Gibson had commenced
production from Tallering Peak in the mid-west in 2004, and
IRON ORE CONFERENCE / PERTH, AUSTRALIA, 24–26 JULY 2017
in 2006 also sought to acquire the Koolan Island iron ore
project via the takeover of Aztec Resources (Trench, Pridmore
and Lau, 2006).
2007 – Momentum and expectation grows
Significant growth and a positive market outlook in 2007
resulted in 15 iron ore companies listing on the ASX, raising
a total of $79 950 000 through IPOs (Figure 3). Although
many companies listed, only eight were focused on projects
in Australia, and six of those specifically in WA (Figure 3).
WA’s major producers topped 250 Mt, courtesy of BHP
Billiton (106.7 Mt), Hamersley Iron (109.5 Mt) and Robe River
(51.2 Mt).
Market momentum for new supply investment saw
advancement across several next generation projects
and expansion of ‘fringe’ (small-scale) mines. Midwest
Corporation signed a joint venture with Sinosteel over two
projects in the mid-west of WA; the Weld Range hematite
project and the Koolnooka magnetite project. In August,
Midwest announced that it had attracted equity partners
for the major port, road and rail infrastructure development
projects required to allow full expansion of the Geraldton
region iron ore production capacity. The consortium of
infrastructure partners, operating as Yilgarn Infrastructure,
revealed plans to list on the Australian Stock Exchange.
At the Southdown magnetite project, Grange Resources
signed an agreement with a subsidiary of Sojitz Corporation, a
Japanese trading company, whereby the incoming party could
take a 30 per cent equity interest in the project by achieving
a number of milestones. The project’s Public Environmental
Review for the upgrade to the Albany Port advanced.
CITIC Pacific announced the total costs of Sino Iron
magnetite project was expected to be US$2.5 billion with the
first production line to be completed in early 2009 (Huang
and Huang, 2013).
Smaller WA producers included Portman (principally from
the Koolyanobbing operations but also Cockatoo Island), Mt
Gibson Iron, Sinosteel Midwest and Crosslands. Mt Gibson
commenced production at the Koolan Island iron ore mine in
early 2007, targeting a ramp-up to 4 Mt/a production.
Murchison Metals commenced ‘phase 1’ production from
the Jack Hills project, targeting 1.5 Mt/a and a ramp-up
379
L BARRERE et al
towards 2 Mt. A ‘phase 2’ project plan envisaged 25 Mt/a
production contingent upon infrastructure upgrades in the
mid-west.
2008 – The race to grow production
Six iron ore companies listed on the ASX in 2008, with four
being Australia-orientated, and three of those working in
WA (Figure 3). These IPOs raised a total of $26 000 000),
equalling less than half that of the previous year (Figure 3).
Major WA producers expanded production again: BHP
Billiton (124.4 Mt), Hamersley Iron (110.3 Mt) and Robe
River (50.3 Mt). Hope Downs (Rio Tinto 50 per cent, Hancock
Prospecting 50 per cent) commenced production in late 2007
at a rate of 10.9 Mt in 2008. FMG also commenced production
with 14.8 Mt.
Among the smaller and ‘new generation’ iron ore
companies, Atlas Iron rose to prominence during 2008 with
plans to export 30 to 40 Mt from the Pardoo project over a
ten year mine plan (commencing exports during 2008 at just
0.1 Mt). The company’s growth strategy was denoted ‘The
Pilbara’s Emerging Powerhouse’. Beyond Pardoo, Atlas flagged
its intention to achieve production from Abydos (plan at
3 Mt/a) and to advance work on the Ridley magnetite project
(Trench, Thompson and Lau, 2008). Atlas’ first production
commenced December 2008.
Mt Gibson continued to produce from its Tallering Peak
mid-west operation although encountered port bottleneck
issues resulting in significant ore stockpiles. The company
also flagged progress towards production commencement at
the Extension Hill hematite project.
Gindalbie Metals advanced both hematite and magnetite
developments at Karara in the mid-west with equity
and offtake partner Ansteel. Planned 2008 production
commencement from direct shipping hematite ore was
however delayed with magnetite project work continuing.
In July, the Oakajee Port and Rail syndicate became the
preferred proponent to develop the mid-west iron ore port
and logistics infrastructure to upgrade export capacity.
Grange Resources continued to progress permitting
approvals for the Southdown magnetite project with
partner Sojitz Corporation. The anticipated production
commencement should the project be commissioned was
pushed back to 2012.
CITIC Pacific announced higher capital costs were now
estimated for the Sino Iron magnetite project at US$4.2 billion
(Huang and Huang, 2013).
2009 – Global financial crisis or brief interlude?
Due to the GFC-led market uncertainty in 2009, there were
no iron ore listings on the ASX (Figure. 3). The major WA
producers expanded again and comprised BHP Billiton
(129 Mt), Hamersley Iron (129 Mt) and Robe River (54.6 Mt).
Among the new generation companies, Atlas Iron outlined
plans to develop the Wodgina iron ore deposit with production
commencement from 2010 initially at 2 Mt/a run-rate rising
to 3.6 Mt/a. Similarly, Atlas described a mine plan for the
Abydos project with late 2010 start-up and production of
2 Mt/a rising to 3 Mt/a. A merger of Atlas Iron with Warwick
Resources announced late in 2009 targeted a ramp-up of the
combined portfolio of direct shipping-ore mines towards an
eventual 26 Mt/a export operation via Port Hedland (targeted
for 2014). Atlas also released prefeasibility outcomes for the
Ridley magnetite project estimating a ~A$3 billion (A$2972 M)
capital cost for a 15 Mt per annum magnetite concentrate
(~68 per cent Fe) operation.
380
BC Iron announced a joint venture arrangement with FMG
that would allow access to the FMG rail infrastructure for
outbound logistics from the Nullagine DSO project. FMG
subsidiary The Pilbara Infrastructure Pty Ltd would provide
rail haulage, port handling and ship loading facilities at
commercial rates in return for a 50 per cent interest in
Nullagine. Nullagine will access the FMG airstrip, systems
and facilities infrastructure at Christmas Creek. FMG also
committed to provide A$10 M equity in proportion to its JV
interest as part of the project start-up financing which was
completed in late 2009. At its wholly-owned operations, FMG
reached 32.8 Mt, rising well above the fringe producers in
Cliffs (8.5 Mt), Mt Gibson Iron (6.4 Mt), Atlas Iron (1.0 Mt)
and Crosslands (1.7 Mt).
2010 – Global demand rebounds: Western
Australia supply keeps on coming
Global steel production hits 15 per cent year-on-year growth
taking output beyond pre-GFC levels. Market commentary
anticipates further growth in steel consumption. Urbanisation
is a work-in-progress for China and hence the continued
driver of steel and iron ore consumption growth. Steel
demand is expanding across the developing world, most
notably in Brazil and the Middle East.
Supply growth continued. Seaborne iron ore trade delivered
consistent 7–9 per cent annual growth over the 2005–2010
period. WA’s new generation iron ore companies faced
positive market fundamentals once again. The availability of
ore on the spot market tightened as exports fell sharply out of
India, where a ban on exports from Karnataka cut-off around
25 per cent of India’s exports. Despite continued export
growth from WA (and Brazil) the additional supply was
insufficient to offset the cut in Indian exports. Consequently,
spot prices rose sharply allowing Chinese ore production to
rebound in 2010 back to 2008 levels.
Along with the rebound in demand came nine ASX listings,
four with a major focus on Australia and three of those in
WA. These IPOs raised a total of $76 800 000, close to value
raised during the pre-GFC peak in 2008 (Figure 3). The
major WA producers continued to expand including BHP
Billiton (132.6 Mt), Hamersley Iron (132.9 Mt) and Robe River
(59.6 Mt). FMG reached 41.9 Mt. Among the smaller-scale and
new generation WA producers supply continuing to grow –
Cliffs (9.2 Mt), Mt Gibson Iron (6.2 Mt), Atlas Iron (2.2 Mt)
and Sinosteel Midwest (0.8 Mt). Specific project developments
highlighted the difference between DSO projects, where
those projects with infrastructure advantages gained traction,
and magnetite projects which remained technically (and
financially) challenging.
Atlas Iron announced a scrip-based merger with Aurox
Resources via scheme of arrangement in March following
on from a port co-operation agreement announced a month
earlier. Aurox was targeting long-term development of the
Balla Balla iron ore (magnetite) project at Whim Creek. The
merger process completed in August 2010. The combined
Atlas-Aurox entity could now access a port loading capacity
allocation of 33 Mt/a via Utah Point at Port Hedland, removing
a bottleneck to the Atlas Iron production expansion. Mining
at the Atlas Iron Wodgina DSO operation commenced in June
such that the end-2010 production run-rate reached 6 Mt/a.
Prior to year-end Atlas Iron announced a takeover offer for
Giralia Resources NL, valuing the target company at A$828 M
on an Atlas Iron scrip-value basis.
BC Iron achieved first mining at the Outcamp deposit within
the Nullagine Iron Ore Joint Venture with FMG in December
2010.
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 NEW GENERATION WESTERN AUSTRALIAN IRON ORE 2006–2016 – STRATEGIC INSIGHTS FAR BEYOND THE PILBARA?
CITIC Pacific in May agreed to pay an additional amount
of US$835 Mt MCC, the development contractor, with the
Sino Iron magnetite project cost elevated to US$5.2 billion. In
August, CITIC Pacific stated it expected the first production
line should be ready for operational testing by the end of 2010,
and the first magnetite concentrate shipment in the first half
of 2011 (Huang and Huang, 2013).
2011 – Iron ore prices at all-time highs
Iron ore prices reached unprecedented levels in 2011 – but
were accompanied by extreme volatility. As an example,
from a high of US$183/t CFR China in early September,
the price of 62 per cent Fe fines fell to a low of US$117/t in
late October prior to stabilising in the US$130–140/t range.
Chinese demand was the price-trigger for the rise – and a
material rise in Australian exports in the second half of the
year considered the reason for the price fall. Indeed, the price
fall was cushioned by a reduction in Indian ore exports that
accelerated in the second half of 2011 as official restrictions
intensified. Higher-cost exporters on the east coast of India
then withdrew from the market as prices fell. Chinese
domestic ore production rose and fell with prices.
Only two iron ore companies were listed on the ASX during
2011, one of which operated in WA. Together they raised a
total of $18 800 000 through IPOs (Figure 3). Among the
new generation of WA iron ore companies’ production was
modest, such as Atlas Iron (5.6 Mt), BC Iron (1.5 Mt) and
Gindalbie Metals (0.7 Mt) with project performance again
favouring DSO developments over magnetite projects.
Mineral Resources advanced the Carina Iron Ore project
in the Yilgarn from approval and construction in February
2011, to mining in late September 2011 and first export of
product in November 2011. Carina commenced ramp-up
towards a production rate of 5.4 Mt, with ore transported by
road and then rail to the Kwinana Bulk Terminal in the Port
of Fremantle.
Atlas Iron closed the takeover of Giralia Resources in March,
announcing anticipated production to rise from 6 Mt/a
run-rate to 12 million by end 2012 including expansion at
Wodgina. In June Atlas announced a takeover of Ferraus
Limited to further consolidate the SE Pilbara region adding
150 Mt of DSO resource inventory excluding exploration
targets for a combined resource inventory approaching 1 Bt
DSO plus three magnetite projects. The Ferraus transaction
completed in October. In November Atlas Iron acquired the
Corunna Downs DSO project from Gondwana Resources.
In December Atlas Iron agreed to sell the Balla Balla and
Yerecoin magnetite projects for a combined A$58 M. Atlas Iron
production included sale of two low-grade DSO shipments
grading just 54 per cent Fe.
BC Iron commenced iron ore exports in February with
the Nullagine Joint Venture shipping first ore via Port
Hedland courtesy of ‘third party’ access to FMG rail and port
infrastructure.
CITIC Pacific in December paid an additional US$822.1 Mt
project contractor MCC for the completion of the first two
magnetite concentrate production lines and related site
facilities, increasing the contract sum from US$2.585 Bt
US$3.407 billion. It further announced that the first production
line is expected to be completed by end August, 2012 and
project costs were expected to exceed US$6.0 billion (Huang
and Huang, 2013).
IRON ORE CONFERENCE / PERTH, AUSTRALIA, 24–26 JULY 2017
2012 – Prices wobble: Western Australian
expansions deliver continued supply growth
Australian producers increased exports with the
commissioning of expansion projects and with the continued
ramp-up from FMG. BHP Billiton for example increased
output by adding a new ore handling facility at Yandi and rail
and ship loading capacity at Nelson’s Point, Port Hedland.
Also in 2012 BHP Billiton backtracked on the major project
plan to develop the Outer Harbour of Port Hedland, favouring
a further optimisation plan to fully utilise the inner harbour.
A period of iron ore price weakness in the third quarter of
2012 prompted a reassessment of the viability of new project
supply. Projects in WA’s mid-west region, excluding the
Gindalbie-Ansteel Karara magnetite, were delayed given the
deferral by Mitsubishi to develop Oakajee Port. Investments
in new magnetite projects were deterred by complications
and capital cost escalation associated with Gindalbie’s and
CITIC Pacific’s projects.
China continued to operate as the marginal producer
in the market providing a level of price support at/above
~US$110/t CFR although production levels declined as
domestic production was replaced by imported ores. That
said, announcements by the Chinese authorities continued
to stress an aspiration to increase self-sufficiency in part via
industry consolidation to increase cost efficiency with plans
for additional domestic capacity.
A single China based iron ore company listed on the ASX in
2012, raising a total of $2 000 000 from their IPO (Figure 3). No
further iron ore exploration/production focused companies
were listed on the ASX between 2012 and 2016. FMG
commissioned its second shiploader and third shipping-berth
mid-year. FMG scaled back its output target of 155 Mt/a
in light of the Q3 decline in iron ore prices briefly below
US$100/t by deferring the development of the Kings deposit
at the Solomon mine – however the company then announced
that the strong revival in ore prices has allowed work for this
target to progress once more. Sales of non-core assets; the
power station at Solomon and its stake in the Nullagine JV
with BC Iron, enabled the company to focus on expansion
plans. FMG ended 2012 operating at a run-rate of ~100 Mt/a.
Among the new generation producers, Atlas Iron in October
announced a US$325 M five-year secured loan as part of its
expansion strategy with use of funds including the new Mt
Dove development (December 2012), Abydos (2013), the Utah
Yard two port facilities (2013, 10 Mt/a capacity) and potential
Mt Webber development.
CITIC Pacific in April acquired further rights from
Mineralogy to mine magnetite ore now totalling 3 Bt. The
company advised that the Sino Iron project expenditure had
reached US$7.1 billion at the end of 2011. In November, CITIC
Pacific announced load-commissioning of its first production
line (of six) at its Sino Iron magnetite project (Huang and
Huang, 2013).
BC Iron in December announced that it would purchase an
additional 25 per cent of the Nullagine Iron Ore Joint Venture
from FMG for consideration of A$190 M resulting in a BC Iron
75 per cent, FMG 25 per cent equity position.
2013 – Strong Chinese demand
growth met by a ‘wall’ of new Western
Australian iron ore supply
Chinese crude steel production, and in turn iron ore demand,
grew at a remarkable 8 per cent/a in 2013.
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A ‘wall’ of Australian supply entered the market in 2013,
injecting 95 Mt of broadly low-cost production. Newcomers
Gindalbie achieved its first commercial shipment and
Hancock Prospecting advanced plans for the 55 Mt/a Roy
Hill mine. Towards year-end cyclone activity impacted iron
ore supply chains, most notably when cyclone Christine hit
the Pilbara in December.
Rio Tinto outlined a new lower capex and lower risk
path to expand shipments towards 360 Mt/a. Previously
the company was to invest in new mines, Silvergrass and
Koodaideri, to lift export capacity up to this level; however,
a drive to lower capital expenditure and push productivity
meant that the company found ways to expand existing mines
incrementally towards this level, thereby avoiding the need to
invest in greenfield mines for the time being.
FMG continued discussions to allow potential junior
producers, Brockman and Flinders, access to its rail network,
known as ‘The Pilbara Infrastructure’.
Elsewhere among the juniors, Atlas Iron announced final
approval to progress the 3 Mt/a. Webber mine (A$143 M
capital cost) with potential future expansion to 6 Mt/a
(projected A$60–70 M capital cost).
Numerous potential projects in WA progressed their studies
including Brockman’s Marillana, Flinders’ Pilbara Hematite,
Aquila’s West Pilbara, Mitsubishi’s Jack Hills, Asia Iron’s
Extension Hill magnetite project, and a collection of small
projects around the Yilgarn.
BC Iron achieved nameplate capacity of 6 Mt/a run-rate by
mid-year at the Nullagine Joint Venture with FMG.
Chinese high-cost production continued – principally
through exploitation of deposits in the provinces of Liaoning
and Hebei, jointly responsible for around 50 per cent of
Chinese domestic production, resulting in gradual but
material decline in ore reserves. China tripled its spending
on iron ore exploration in the five years to 2012 above
previous levels. As a result, 66 iron ore projects with a total
ore production capacity of 491 Mt/a had been identified and
these are being promoted within China.
2014 – Declining ore prices
test all but the majors
Iron ore prices declined through the year even though Chinese
iron ore demand reached 1.14 Bt. From over US$120/t CFR
for 62 per cent Fe fines (2014 Q1 average), prices drifted
to US$101/t average for Q2, US$91/t in Q3 and to only a
~US$74/t average price for Q4 2014.
Exports from Australia continued to rise, up by around
130 Mt year-on-year. This new production was predominantly
low-cost, from the majors, and acted to squeeze out the
higher-cost producers, principally in China and the non-
traditional iron ore exporting countries. Lower oil prices
and depreciating currencies offered some respite to marginal
producers. China’s domestic iron ore production declined by
approximately 50 Mt/a in 2014 with small-scale mines ceasing
operations on grounds that they can no longer compete in a
lower price environment.
In November 2014, Rio Tinto announced that it was
postponing its decision on its Silvergrass expansion. Among
junior producers Mt Gibson suspended operations at Koolan
Island due to flooding in November 2014.
Atlas Iron in February approved the Mt Webber expansion
project from 3 Mt/a to 6 Mt, shipping a total of 10.9 (wet) Mt
for the financial year to June 2014. Atlas Iron announced cost
382
containment measures including redundancies and executive
salary reductions through the latter months of 2014.
BC Iron announced a takeover of Iron Ore Holdings (IOH)
to augment the company’s Pilbara iron ore assets. The IOH
assets of Iron Valley and Buckland were considered long-life
development assets. The Iron Valley asset sells ore under a
mine gate sale agreement to Mineral Resources Limited with
a minimum tonnage provision per annum. Road haulage to
Port Hedland allows access for export. Iron Valley plans up
to 6 Mt/a production.
2015 – Prices slump: belts tightened further
Weakened Chinese demand was the principal driver of
lower prices, against a backdrop of increasing supply. The
downtrend in prices saw Q1 2015 average prices CFR China
(62 per cent Fe) of US$63/t declining to US$58/t (Q2) then
US$54/t (Q3). The final quarter saw prices average US$47/t.
Indeed, the iron ore price fell to US$38/t by early December
2015.
Global iron ore consumption in 2015 fell by 1.9 per cent
year-on-year, to 2.08 Bt. Despite total iron ore consumption
decreasing in 2015, imports bucked the trend and marginally
increased. Global iron ore imports rose by 8 Mt to 1.41 Bt.
China imported more iron ore, as increasing seaborne supplies
squeezed out high-cost domestic production, reducing it to
40–50 Mt/a.
The Samarco Fundão tailings dam tragedy in November
had the effect of removing 30 Mt/a of Brazilian capacity from
the pellet market.
The rate of growth in Australian exports passed its peak.
After the majors added 128 Mt in 2014 the growth was 67 Mt
in 2015.
Roy Hill exported its first cargo from the Pilbara to South
Korea in December 2015. Roy Hill thus commenced ramp-
up towards its intended 55 Mt production capacity, of which
40 per cent will be lump product. Mount Gibson resumed
lump exports from Acacia East, a satellite deposit of its
mothballed pits on the Koolan Island.
Conversely several closures and curtailments occurred
among smaller producers in WA throughout the year. In
February, Kimberley Mining Group placed its 1.8 Mt/a Ridges
mine near Wyndham into care and maintenance. In April 2015,
Sinosteel Midwest Corporation suspended its 1.5 Mt/a Blue
Hills operation in the Geraldton area and in December 2015,
BC Iron announced the closure of its Nullagine operation in
the Pilbara, the latter taking 6 Mt/a of 58 per cent Fe product
from the market. The Nullagine operations were suspended
progressively over December and January, with exports
completed during January 2016.
Atlas announced it was to suspend mining at all its assets in
April 2015. After a successful renegotiation with its contractors
in early May 2015, the company subsequently progressively
reopened its Wodgina, Mt Webber and Abydos mines.
An A$86 M equity raising (July) and then debt restructure
agreement (December) were also completed in 2015.
Diversified mining services and contracting company
Mineral Resources Limited reported record shipments from
the Iron Valley operations in the Pilbara in the second half of
2015, achieving 6.5 Mt produced and shipped in the 2015–2016
financial year. The company’s Yilgarn iron ore operations
were 5.4 Mt in the same period.
Smaller producers comprised BC Iron (5 Mt), Gindalbie
Metals (10 Mt), Mineral Resources (11 Mt), Cliffs (12 Mt),
Mt Gibson Iron (6 Mt), Atlas Iron (12 Mt), Sinosteel Midwest
and CITIC Pacific – Sino Iron (4 Mt).
IRON ORE CONFERENCE / PERTH, AUSTRALIA, 24–26 JULY 2017
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2016 – Price recovery: all aboard for now?
Iron ore prices surprised to the upside in 2016. First quarter
prices of US$47/t CFR China (62 per cent Fe) rose to US$54/t
(Q2) then US$56/t (Q3).
China was on track to import 1 Bt of iron ore, a record high.
Imports consisted mostly of sinter fines and lump. Pellet
imports have tumbled as seaborne producers are diverting
shipments from China to core markets in Europe and North
East Asia.
Chinese domestic production has failed to respond to higher
prices in 2016. Environmental controls, weather disruptions
and lagging domestic prices are expected to result in a 65 Mt
fall year-on-year in Chinese domestic production.
The ramp-up at Roy Hill was the major driver of growth in
Australian supply, whilst FMG exported above its nameplate
capacity of 165 Mt/a.
In April, Atlas Iron completed a creditors’ scheme allowing
recapitalisation of the company and leaving the lenders
owning 70 per cent of the company; meanwhile DSO
production continued. The company no longer led with the
tag of The Pilbara’s Emerging Powerhouse restating the situation
as A new beginning. A new investment opportunity.
CITIC’s Sino Iron project formally commissioned the last
two of six concentrator lines, continuing production ramp-up.
THE FMG STORY – DAVID TO GOLIATH
Fortescue Metal Group Ltd (FMG) came into being after a
mid-2003 name and strategy change, listing on the Australian
Securities Exchange (ASX) that year, with the company
focused on the development of iron ore deposits in the East
Pilbara. The company had been exploring the Mount Nicholas
iron ore project since 2001 (Trench, Pridmore and Lau, 2006).
The stated goal of the company was to become the ‘New Force
in Iron Ore’ (FMG, 2003) and to ‘unlock’ iron ore assets for
minority industry players in the region by providing access
to its future infrastructure. From the outset, FMG recognised
and targeted the potential of a steel boom in China (FMG,
2003).
Following the generally weak commodity markets at the
turn of the century – and a consequent lack of risk appetite
for exploration – a significant proportion of the East Pilbara
region was not held under mineral exploration title allowing
FMG to accumulate a large ‘land bank’ prospective for iron
mineralisation (Figure 4).
By mid-2006, FMG had already achieved a market
capitalisation of A$2.5 billion (Trench, Pridmore and Lau,
2006), rising to A$11.9 billion by mid-2007 (Trench, Thompson
and Lau, 2007) and surpassing A$21 billion in 2008 prior to
the GFC (Trench, Thompson and Lau, 2008). As at 27 January
2017, the market capitalisation of FMG stood at A$20.6 billion
(Google Finance, 2017).
Successful ‘start-up’ companies generally have one
characteristic in common – a driven founder. The influence
of the founder resonates deep within the walls of the
organisation, and permeates its culture. In the early years
FMG’s reliance upon its founder Andrew Forrest may have
been almost as important as a ‘corporate asset’ as the iron ore
that the company planned to extract.
One of the early challenges for FMG was to demonstrate
a potentially viable project; it needed iron ore resources and
reserves – and in large quantity. As such, it needed funding to
discover and to delineate ample tonnages. FMG also needed
substantial capital to fund the outbound infrastructure
(port and rail). In effect, FMG had to raise capital to fund
IRON ORE CONFERENCE / PERTH, AUSTRALIA, 24–26 JULY 2017
infrastructure to develop a deposit that did not yet ‘exist’.
The company sent its marketing team in China to approach
Chinese steel mills. The first encounters were not successful.
In August 2006, however FMG raised approximately
US$1.9 billion (A$2.7 billion) in senior secured debt
in association with Citi Group to partially finance the
development of the project, eventually negotiating an
investment grade rating. According to a 2015 corporate video,
Andrew Forrest was once again vital in encouraging the
rating agencies to improve their initial ratings, which were
too low, indicating a risky investment which would have had
adverse effect on later financing. Mr Forrest spent the night on
the phone raising capital with European bankers (Citi Group
among them) to derisk the company financials and increase
the bond rating to an acceptable level (Figure 5).
FMG initially attempted to gain access to existing iron
ore infrastructure without success (National Competition
Council, 2004). The ensuing ‘Plan B’ to transport product
independently throughout its own infrastructure has
however provided FMG with far greater potential to scale up
production. Such an outcome could not have been achieved in
a shared infrastructure scenario.
It took FMG only five years from its 2003 listing to its
first shipment of iron ore. Port and rail construction started
in 2006. The company began the first mining operation at
Cloudbreak in the Chichester Hub in late 2007 with the first
production in May 2008. In its first year, the mine produced
28 Mt of iron ore. The Christmas Creek Mine started operation
the following year. Firetail and Kings Valley in the Solomon
Hub commenced in 2012 and 2014 respectively.
FMG had by this time become a significant player in WA,
sitting around a median position on the cost curve; however,
it was carrying significantly more debt than other producers
when iron ore prices dropped in 2012 (A$11.3 Bt total
Liabilities, of which A$8501 billion in Borrowings, (FMG,
2012)).
Falling iron prices thus presented an existential corporate
threat. FMG thus had little choice but to maintain production
ramp-up apace to lower unit costs due to economies of scale,
but also concurrently to conduct extensive cost-cutting to
service its multibillion dollar debt load, which was advancing
towards maturity (US$320 M and €315 M Senior Secured
Notes due 2013, and US$1080 M due three years later; FMG,
2006). Anecdotally, the FMG staff and contractor lay-offs and
company-wide cost-cutting of 2012 certainly searched for all
efficiencies. FMG internal memoranda reported in the media
noted that ‘the condiments and items to facilitate BBQs will not be
replaced once they are used’ and ‘No Port Fortescue vehicles are to
be parked at the Port Hedland Airport unless it is in the 30 minutes
or less section and free’ (Australian Mining, 2012). Beyond such
micromeasures to control costs, implemented to signal the
urgency throughout the organisation, innovation across all
iron ore producers in the Pilbara region has been a source of
lowered costs in recent years.
For example, FMG’s Cloudbreak deposit, a flat thin layer of
iron surrounded by waste rock, afforded one opportunity to
innovate. Traditional mining methods of drill and blast would
have diluted the Cloudbreak ore with waste and potentially
rendered the deposit unrealisable. FMG therefore looked
at surface miners to take off that sheet of iron. However,
surface miners are usually used for softer deposits. Early
in the development stage FMG tried to deploy an ‘off-the-
shelf’ surface miner, but literally destroyed it (FMG, 2013).
The picks on the surface miner tasked with cutting the rocks
were not strong enough to sustain the level of mechanical
stress imposed. FMG challenged manufacturers to develop
383
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FIG 4 – Fortescue Metals Group’s extensive tenement holdings in the Pilbara region in 2003 and 2004 meant they had a controlling first
mover advantage amongst new market entrants when iron ore prices began to rise steeply from 2006 (source: Barrere, 2016).

FIG 5 - Initial and final bond rating for US$1.9 billion of Fortescue Metals Group debt raised in 2006 (source: Barrere, 2016).

384 IRON ORE CONFERENCE / PERTH, AUSTRALIA, 24–26 JULY 2017

 NEW GENERATION WESTERN AUSTRALIAN IRON ORE 2006–2016 – STRATEGIC INSIGHTS FAR BEYOND THE PILBARA?
an appropriate design. After several failed attempts FMG
working with their existing supplier (Wirtgen) could develop
a new machine, which eventually achieved profitable
operation.
Beyond this, FMG applies innovation at its other operations,
for example, in operating autonomous dump-trucks at its
Solomon mines (Kings Valley and Firetail). Innovation was not
just technologically focused, however, smart mine planning
integrating the high-grade Firetails deposit and high volume
(so low unit cost) Kings Valley deposit, in combination with
the completion of the wet front ends of the Chichester plants
meant a substantial amount of mineralised waste could be
converted to ore, significantly reducing the strip ratio, yet
still meeting production specification requirements. Finally,
a collective strategic change to become owner-operator at its
mines, combined with the deep cost-cutting and innovation
measures provided FMG with sufficient production revenue
during the post-2011 weaker iron ore price environment to
maintain profitability and manage its debt load.
Due to its rapid development schedule FMG could
temporarily exploit falling barriers to entry in the iron ore
industry, where massive infrastructure requirements normally
restrict new entrants. Growth in Chinese consumption
provided a new market which the existing oligopoly (of
Rio Tinto, BHP Billiton, and Vale) was not able to expand
quick enough to service, providing new entrants such as
FMG (and the other smaller WA iron ore miners discussed
in this paper) with an opportunity if they moved quickly.
Since then, however, the fall in iron ore prices and slowed
consumption growth in China means ‘normal’ conditions in
the iron ore market have returned, with substantial barriers
to entry provided by the existing miners multi-billion-dollar
infrastructure. Ironically, by growing rapidly to a significant
scale, innovating hard and cutting costs aggressively, FMG
now sits behind the barrier to entry it once sought to overcome
– unlike WA’s other new iron ore miners, which failed to grow
as rapidly and cut costs as aggressively, and thus once again
face significant barriers to entry, including moderate market
growth and a less attractive price environment.
NEW MARKET ENTRY – INSIGHTS
BEYOND IRON ORE
Oligopoly industries with high barriers to entry such as iron
ore are not immune to market entry by new companies, even
prospective new entrants with initially modest financial
resources. Furthermore, new market entry need not necessarily
require ownership of a best-in-class next generation asset
that affords future cost advantage over incumbents. Outside
iron ore, the lithium value chain provides a contemporary
analogy. In that industry, whilst upstream lithium mining and
processing is undergoing material supply-side restructure
driven by new entrants including lithium miners from WA,
the business case of Tesla Motors, currently challenging the
established automobile manufacturers in the electric vehicle
market (Stringham et al, 2015) has many similarities to the
2006–2016 entry of FMG into the iron ore sector. Electric
vehicles might be considered an extreme case of ‘downstream
lithium’, providing a demand-shock akin to China’s entry as
a customer for seaborne traded iron ore.
Tenure to a significant land position creates a natural
monopoly that affords a platform from which to build a
significant business. Despite disadvantages of a weaker
balance sheet than competitors, lack of ownership or access
to infrastructure, and only preliminary demand-side
commitments as future customers, the FMG ‘land bank’
formed a key cornerstone asset for the company (Figure 4).
IRON ORE CONFERENCE / PERTH, AUSTRALIA, 24–26 JULY 2017
The potential option value of major future resource definition
may attract strong early market support, which if it eventuates,
affords a further significant impediment to competitors
derailing the intended market entry.
The detail of market developments are next to impossible
to forecast over the long-term development and realisation
time horizon of a major minerals project. At the time of
formation of FMG in 2003, whilst first-mover actions ahead
of the future significant role of Chinese steel sector growth
was critical, other market events would not have been
foreseeable. These include the role of the GFC, the outcomes
of strategic responses from larger competitors, the changes to
the benchmark industry pricing mechanism, the actual price
trajectory itself which reached record levels in 2011 and the
related cost inflation pre- and post-GFC impacting on the
forecast competitiveness of WA mines. Clearly not all market
factors need to be predictable to commit to a successful
market entry strategy, however, strategic adaptability and
an innovative attitude will help meet the challenges of
unpredictable market events.
FMG’s different iron ore product was found to be fit-for-
purpose as a steel raw material opening a significant new
product segment in the market. Next generation mineral
products need not therefore always increase in quality.
Whilst the high-end product segment, represented in iron
ore by magnetite concentrates, holds significant promise as
a long-term ‘clean’ feedstock to the steel industry, the market
opportunity in low-end ~58 per cent DSO product was
significant – it is notable that the major magnetite projects
in WA have under delivered, whilst ‘lower quality’ hematite
projects, especially FMG’s asset have, at least, met their
potential. In this respect FMG’s product is analogous to many
disruptive innovations that originate in low-end and/or new
market footholds (Christensen et al, 2015).
ACKNOWLEDGEMENTS
The authors would first like to acknowledge the input of FMG
staff into this paper. The authors also acknowledge Laura
Brooks, Serafino Capoferri and the CRU Group steel raw
materials team for their assistance in preparing this paper.
The authors would also like to thank Will Malaney and Pas
Perazzelli for their input into Table 1. John Sykes would like to
acknowledge the financial support of a Centre for Exploration
Targeting ‘ad hoc’ Scholarship. Sam Davies would like to
acknowledge the support of Alto Metals. Both John Sykes
and Sam Davies acknowledge an Australian Government
Research Training Program Scholarship.
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386 IRON ORE CONFERENCE / PERTH, AUSTRALIA, 24–26 JULY 2017

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