Internationally, the iron-ore industry continues to battle constrained operating conditions, caused by near-static demand and a surplus supply of good-quality iron-ore, negatively impacting on the iron-ore price, says mining consultancy The MSA Group head of geology Dr Brendan Clarke.

He says, consequently, the poor iron-ore price has had a significant impact on iron-ore exploration and mining globally.

The severity of the challenging business environment is demonstrated by multinational miner Rio Tinto announcing in July that it would shelve its Simandou project, in Guinea, among the world’s biggest unexploited iron-ore deposits.

“Simandou is a world-class iron-ore deposit. However, Rio Tinto has acknowledged that development of the project, which requires extremely high capital development costs, cannot be justified in the current oversupplied market,” says Clarke.

Simandou would have comprised an iron-ore mine in central Guinea, a 650 km railway and a deep-water port on the West African country’s Atlantic coast.

Clarke explains that, on the demand side, slowing growth in China – the largest iron-ore consumer in the world – has had a significant impact on the iron-ore price, which has dropped from more than $170/t in January 2013 to about $50/t in July. As a result, higher-cost producers, some of which were operating in West Africa, have been forced to close their doors. However, lower-cost, higher-volume producers, such as Anglo-Australian miner BHP Billiton and Rio Tinto, both with operations in the Pilbara region of Western Australia, have countered the falling prices by increasing production volumes to offset their margin losses.

Clarke notes that these attempts to gain control of the market by bolstering supply have been the subject of much criticism, with the world’s fourth-largest iron-ore producer Fortescue Metals Group nonexecutive chairperson Andrew Forrest urging the Australian public in a much publicised appeal in 2015 to support Australian-focused mining companies rather than large multinationals.

“It is only now, with new Rio Tinto CEO Jean-Sébastien Jacques having taken over, that we have seen a clear declaration from the company that its push for market control through increasing mine outputs is off the agenda,” Clarke notes.

He adds that iron-ore demand has been further affected by increasing volumes of recycled steel on the market, which has reduced the demand for iron-ore. Clarke acknowledges that the iron-ore price has improved since January, reducing the pressure somewhat on steel producers.

However, given the massive endowments in terms of tons of high-quality ore in Australia and particularly Brazil, there is still little interest, and, hence, very little funding available for developing greenfield iron-ore projects. This is especially pertinent in Africa, Clarke notes, which tends to be more challenged relative to Australia in terms of proximity to China and available infrastructure.

Market Changes
MSA is consulting several iron-ore companies at various stages of the project life cycle. “Of most interest is the change in how companies intend to add value to their projects,” says Clarke.

Five years ago, towards the end of the last commodity supercycle, there were a large number of iron-ore explorers unearthing new resources that had very little chance of ever being developed, owing to the capital investment that was required to do so, predominantly to develop infrastructure. He adds that the iron-ore exploration space was dominated by junior companies looking to turn a discovery into value by selling the project on.

“This happened only in a very few instances and we are now seeing holders of iron-ore exploration projects being forced to evaluate their projects more holistically,” Clarke says.

He outlines, that while iron-ore exploration in Africa has traditionally been dominated by the intention to export iron-ore to China, several companies are now considering the integration of the value chain, from exploration to mining and, ultimately, steel production in West Africa. A lack of infrastructure is a major impediment to iron-ore project development in this region; thus, there has been more focus on projects close to existing ports and railway lines, as these projects will require less capital to develop, Clarke notes.

The ongoing gas discoveries on the west coast of Africa have potentially resolved the power requirements for the development of smelters in these countries, says Clarke, pointing out that the urbanising, highly populated economies of West Africa indicate a potential market for locally produced steel.

“In theory, the case is there for the development of a regional steelmaking industry in West Africa; although, if this materialises, it’s likely to result from intergovernmental cooperation and the contribution of several small iron-ore resources, rather than the development of megaprojects like Simandou.”