Revenue boom: Increased output meets strong demand in export markets

IBISWorld Industry Report B1311
August 2011

Iron Ore Mining in Australia
Edward Butler
2
2 2 2 2

About this Industry
Industry Definition Main Activities Similar Industries Additional Resources

13 Demand Determinants 13 Major Markets 14 International Trade 15 Business Locations

25 Operating Conditions
25 Capital Intensity 26 Technology & Systems 26 Revenue Volatility 26 Regulation & Policy 27 Industry Assistance

17 Competitive Landscape 3 4
4 4 5 7

Industry at a Glance Industry Performance
Executive Summary Key External Drivers Current Performance Industry Outlook

17 Market Share Concentration 17 Key Success Factors 17 Cost Structure Benchmarks 18 Basis of Competition 18 Barriers to Entry 19 Industry Globalisation

28 Key Statistics
28 Industry Data 28 Annual Change 28 Key Ratios

29 Jargon & Glossary 20 Major Companies
20 Rio Tinto Plc – Rio Tinto Limited 22 BHP Billiton Limited 23 Fortescue Metals Group Limited

10 Industry Life Cycle

12 Products & Markets
12 Supply Chain 12 Products & Services

www.ibisworld.com.au | (03) 9655 3881 | info@ibisworld.com

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Iron Ore Mining in Australia August 2011

2

About this Industry
Industry definition
Firms in this industry mine iron ore. The main type of ore mined is haematite.

Main Activities

The primary activities of this industry are Iron ore dressing or beneficiating Iron ore mining Iron sands mining

The major products and services in this industry are Iron ore fines Iron ore pellets Lump ore

Similar Industries

B1312 Bauxite Mining in Australia Companies in this industry mine bauxite and aluminium ore. B1313 Copper Ore Mining in Australia Businesses in this industry mine copper ore. B1314 Gold Ore Mining in Australia Establishments in this industry mine gold-bearing ore and process it into gold bullion. B1315 Mineral Sand Mining in Australia Enterprises in this industry mine mineral sands including zircon, ilmenite, rutile and leucoxene. B1316 Nickel Ore Mining in Australia Companies in this industry mine nickel ores including sulphide and lateritic ore.

IBISWorld writes over 500 Australian industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com.au

Additional resources

For additional information on this industry www.abares.gov.au Australian Bureau of Agricultural and Resource Economics and Sciences www.australianminesatlas.gov.au Australian Mines Atlas www.minerals.org.au Minerals Council of Australia

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Iron Ore Mining in Australia August 2011

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Industry at a Glance
Iron Ore Mining in 2011-12 Key Statistics Snapshot
revenue

$56.6bn 23.7%
Profit Exports
Revenue vs. employment growth
100 50

4.3% $25.5bn $52.4bn 20
Businesses
World price of iron ore
400

Annual Growth 07-12

Annual Growth 12-17

Market Share

Cents per dry metric ton

Rio Tinto Plc – Rio Tinto Limited 41.0%
% change

300 200 100 0

BHP Billiton Limited 37.0% Fortescue Metals Group Limited 10.0%
p. 20

0 −50 −100

Year 03 Revenue

05

07

09

11

13

15

17

Year 02

04

06

08

10

12

14

16

Employment
SOURCE: WWW.IBISWORLD.COM.AU

Iron ore production

Key External drivers
world price of iron ore Trade-weighted index demand from iron and steel manufacturing world demand for steel

2.5% 0.7%
SA TAS

96.8%
WA

p. 4
SOURCE: WWW.IBISWORLD.COM.AU SOURCE: WWW.IBISWORLD.COM.AU

Industry Structure

Life Cycle Stage Revenue Volatility Capital Intensity Industry Assistance Concentration Level

Growth Very High High Low High

Regulation Level Technology Change Barriers to Entry Industry Globalisation Competition Level

Heavy Medium High High High

FOR ADDITIOnAL STATISTICS AnD TIME SERIES SEE THE APPEnDIx On PAGE 28

A headline tax rate of 30. Over the five years through 2011-12. so too will the value of iron ore mined by this industry.0%.6 billion in 2006-07. When the iron ore price grows.0% will be imposed on profit after a return equal to the long-term government bond rate plus 7. industry revenue is expected to grow at a slower rate of 4. paying wages amounting to $1. World demand for steel The level of steel production worldwide directly affects demand for iron ore. . reaching $25. The industry will employ about 9. with nearly all sales going to China. Industry revenue is expected to grow by 10. is driving demand for iron ore and underpinning price rises. Key External drivers Trade-weighted index The value of the Australian dollar against the US dollar and the US dollar price for iron ore play key roles in determining the Australian dollar earnings of iron ore producers. There are 29 establishments and 20 enterprises involved in the industry.IBISwOrLd. Increases in iron ore output worldwide (a response to recent high prices and strong demand) are expected to put downward pressure on prices.7 billion. Higher iron ore prices in 2011-12 and 2010-11 follow a drop in the previous year that was induced by the Executive Summary | Key External drivers | Current Performance Industry Outlook | Life Cycle Stage Strong growth in emerging nations is driving demand and underpinning price rises global financial crisis.9 billion by 2016-17. compared with $19.7% per annum. initially in the form of a carbon tax. as higher production levels offset somewhat lower Australian dollar iron ore prices. When demand for items made of iron is high. will be introduced on the same date.0 million tonnes in 2011-12.Au Iron Ore Mining in Australia August 2011 4 Industry Performance Executive Summary The Iron Ore Mining industry is expected to generate revenue of $56. Strong economic growth in large emerging nations. The industry is expected to account for 2. miners in this industry will experience sales growth. Profit is also expected to expand strongly.4 billion will be exported. building on the 38. such as China and India. compared with 287.3% per annum over the next five years. World price of iron ore The US dollar price for iron ore depends on the balance between demand and supply in the marketplace. Industry performance is expected to expand more slowly over the five years through 2016-17. industry revenue is expected to grow by 23.900 people in 2011-12.www.0 million tonnes of iron ore valued at $52.7% gain made in the previous year.6 billion in 2011-12. Mining firms’ use of fuel will incur the tax. When steel is in high demand. Japan. Growing iron ore output and higher prices have underpinned the increases in industry revenue. About 435. Carbon pricing. pushing revenue up to $69.COM.7 million tonnes in 2006-07. Australia’s iron ore production is forecast to total 470. iron ore miners will experience more sales. which will be implemented via reductions in currently available fuel tax credits. South Korea and Taiwan. Firms will also gain a tax credit for royalties paid to state governments.2% in 2011-12. The Federal Government plans to impose a Mineral Resource Rent Tax on iron ore and coal from 1 July 2012. Australia will import some iron ore.6% of Australia’s GDP in 2011-12.6 billion in 2011-12. As a result. Demand from iron and steel manufacturing The level of steel production worldwide is a key determinant of the demand for iron ore. mainly from India.

The performance of Australia’s iron ore producers depends on the volume of iron ore produced.4 million tonnes. Although the Indian Supreme Court ordered that the ban be lifted in April 2011.0 million tonnes and 435.7% that year. Overall.COM. when iron ore prices soared. plant and equipment manufacturing and consumer goods manufacturing. Strong economic growth is typically associated with high levels of activity in all or most of these industries and flows through to rising steel demand and output. Revenue expanded by 38. motor vehicle manufacturing. All of the increase has been directed at the Chinese market. Production levels and prices are determined by the interplay of global demand for. Iron ore prices dipped only briefly in the wake of the earthquake and tsunami that devastated sections of Japan’s eastern seaboard. making exporting a less attractive option. and supply of. the mineral.IBISwOrLd. Output has grown dramatically over the past five years. contract prices for iron ore exports were set in annual negotiations between major steel producers in Japan and China.IBISWORLD.Au Iron Ore Mining in Australia August 2011 5 Industry Performance Key External drivers continued World price of iron ore 400 World demand for steel 15 10 Cents per dry metric ton 300 200 100 0 % change 5 0 −5 −10 Year 02 04 06 08 10 12 14 16 Year 03 05 07 09 11 13 15 SOURCE: WWW.0 million tonnes respectively in 2011-12. but the price rise also reflected constrained availability. shipbuilding. with profit growing at a similar rate. industry revenue is expected to increase by 23. this has done little to ease supply constraints. A key drawback of the system. the higher prices in 201011 reflected a rebound in demand after the global financial crisis. where booming steel production is drawing in imports. The combination of higher output and rising prices is expected to push up revenue sharply and lead to large profit gains in 2011-12.2% from the previous year.0% from March 2011) and increased freight rates for iron ore. with the aim curbing illegal sales. For more than four decades. Together with Brazil. and increased iron ore demand and production. and exports have surged from 257. under . The state of Karnataka in India banned iron ore exports in July 2010. up by 10. although an even stronger performance was recorded in 2010-11.6 billion in 201112. from 287.COM.www.AU Current Performance Demand for iron ore is closely tied to steel production and indirectly related to trends in economic growth that drive global demand for steel. The key steelusing industries worldwide are construction.7% per annum over the five years through 2011-12. the iron ore price (set in US dollars) and the value of the Australian dollar.7 million tonnes in 2006-07. Australia’s iron ore production and exports are expected to be about 470. To a large extent. and major iron ore exporters in Australia and Brazil. The Indian Government quadrupled export duties (to 20. Revenue is expected to reach $56. Australia is a major global supplier of iron ore.

In March 2010. but subsequent price cuts were agreed. Major developed economies moved into recession or teetered on its brink. is that over the course of a year. Australian producers negotiated hard to . In April. settled contract iron ore prices much later than Vale. Higher output and much higher prices lifted revenue generated by Australia’s iron ore producers by nearly 67% in 2008-09.Au Iron Ore Mining in Australia August 2011 6 Industry Performance Current Performance continued which contract tonnages were also set. the world’s third-largest miner of iron ore. BHP Billiton Limited and Brazil’s Vale. Contract iron ore prices soared for the year commencing 1 April 2008. Rio Tinto Limited. Chinese steelmakers. especially in key markets such as China. Steel demand and prices fell sharply in late 2008 as the global financial crisis dimmed growth prospects. announced that it had reached an agreement on quarterly iron ore export contracts with a significant number of its customers in Asia.IBISWORLD. The decline occurred as considerably lower US dollar iron ore prices and a marginally stronger Australian dollar (which led to an even larger price fall in local currency) more than offset higher output. still reeling from the large price increase of the previous year and facing lower steel prices. Vale and Rio Tinto each made similar statements. However. Rio Tinto and BHP Billiton. had sought price cuts of about 40%. commencing 1 April 2008.COM. with Vale noting that 90% of its iron ore sales were contracted under the new quarterly basis. The change in the contract system coincided with rapidly rising spot prices and yielded a near doubling of contract prices compared with the annual benchmark price set for 2009. Negotiations between Vale and steelmakers from Asia and Europe resulted in an agreed price rise of 65% for most ore. as BHP Billiton and Rio Tinto push for monthly pricing. reflecting strong growth in steel production and hence in iron ore demand in a number of countries. The Chinese steel producer Baosteel agreed to an even larger price rise (71%) for Vale’s premium Carajas ore. prices on the spot market and contract prices can diverge markedly. BHP Billiton.www. Time proved to be on their side. Iron ore output and exports were about 353 million tonnes and 323 million tonnes respectively in 2008-09. Australian producers faced the prospect of substantial price cuts during iron ore negotiations for contracts commencing on 1 April 2009. That date came and went without price negotiations being concluded. Strong growth in industry revenue in 2008-09 disguised a marked deterioration in the market for iron ore. held out for smaller price cuts. Tight market conditions.AU protracted price talks. which were holding out for a price rise of 85%. the world’s three big iron ore miners. Further changes may occur.4% in the previous year.7% in 2010-11 followed a revenue slump of 10.IBISwOrLd. and rising iron ore spot prices resulted in steel mills settling for a smaller 33% price cut. resulted in tense and Industry revenue 80 60 % change 40 20 0 −20 Year 03 05 07 09 11 13 15 17 SOURCE: WWW.COM. with a large part of that flowing through to profit. Boom time The enormous revenue gain of 38. Rising transport costs for Brazilian iron ore to Asia led to a large gap opening between the landed price of Brazilian iron ore and Australian iron ore. affecting the growth prospects of developing countries such as China.

there was considerable pressure to conclude a deal before the end of June. reaching 325 million tonnes and 294 million tonnes respectively. Higher output and prices in 2007 resulted in strong growth in industry revenue. price negotiations with Japanese and Chinese steel producers and the value of the Australian dollar. Mount Gibson Iron Ore. Rio Tinto expanded its Tom Price and Marandoo mines by 15 million tonnes per year and constructed new mine capacity at Nammuldi. Australia’s production and exports of iron ore are expected to continue rising over the next five years. Industry Outlook The performance of the Iron Ore Mining industry over the next five years will be heavily influenced by trends in steel demand and production. BHP Billiton lifted output at a number of mines beyond their original capacity. Shortly thereafter. to 288 million tonnes and 257 million tonnes respectively. Negotiations with Chinese steelmakers continued until well into June 2008.www. Despite buyer reluctance to agree to a higher price rise for iron ore from Australia. In the second half of 2006. contributed to the growth from its Tallering Peak mine. Production at major mines in the region and ship loading were halted for several days due to the cyclone. . Similarly. Australian producers secured a 10% increase in prices for both iron ore fines and lump ore. New mines and demand Contract negotiations between steel manufacturers and iron ore miners led to price rises for the year commencing 1 April 2007. Firming global economic growth. while first production from its new 30 million tonne per year Hope Downs mine (50% Rio Tinto) also contributed. Given that spot prices for iron ore were well above the new contract price sought by Rio Tinto. The much smaller producer Fortescue Metals shipped its first cargo of iron ore from its Chichester Range project (45 million tonnes a year) in May 2008. In addition to higher prices. BHP Billiton commissioned its Rapid Growth 3 project in the second half of 2007. Brazilian iron ore producer Companhia Vale do Rio Doce reached an agreement with the Shanghai-based Baosteel Group for a 10% increase in the price of iron ore fines. Australia’s iron ore production and exports rose strongly in 2007-08. A relatively new entrant to the industry. Rio Tinto successfully argued that its iron ore should attract a premium over products from Brazil because of lower shipping costs to Asia. Portman Mining increased the capacity of its Koolyanobbing operation to 8 million tonnes in 2006. and ultimately resulted in a price increase of 85% (backdated to 1 April 2008).IBISwOrLd. Rio Tinto’s expansion of its Yandicoogina mine (completed mid2007) added about 16 million tonnes to its capacity. making five consecutive annual price rises. provisions would have applied in the long-term contracts between iron ore producers and steel mills for sales to occur at spot prices until an agreement was reached. The combination of substantially higher output and prices is estimated to have lifted industry revenue by nearly 27% in 2007-08.COM. there was considerable incentive for buyers to settle before that date. lifting its iron ore output capacity by 20 million tonnes.Au Iron Ore Mining in Australia August 2011 7 Industry Performance Boom time continued capture some of the transport cost benefit associated with Australian iron ore. In December 2006. The gains in production for 2006-07 occurred despite the disruptive effect of a severe cyclone (category four Cyclone George) that swept through the Pilbara region of Western Australia in March 2007. increases in iron ore output and exports occurred in 2006-07. If no agreement had been reached by that date.

The tribunal backed the treasurer’s decision not to declare BHP Billiton’s Mt Newman railway line available for third-party use. Future expansions are planned and precommitment expenditure for Rapid Growth Project 6 has been approved. but set aside the treasurer’s decision to let smaller miners use Rio Tinto’s Hamersley rail network.COM. the company attempted to gain access to BHP Billiton’s Mt Newman rail network in the Pilbara by launching a bid to have the railway declared open for third-party access by the National Competition Council (NCC). The matter was ultimately ruled on by the High Court. the Federal Treasurer announced that third parties were free to apply for 20-year access periods to some Pilbara iron ore rail lines owned by Rio Tinto and BHP Billiton. BHP Billiton has also approved Rapid Growth Project 5. Fortescue then initiated proceedings regarding the matter in the Australian Competition Tribunal. Expansions at a number of iron ore projects will come fully onstream over the next few years. In mid-2004. Australia remains well placed to take advantage of rising activity. By 2016-17.IBISwOrLd. Additional mine output will be handled by expanded port and rail facilities. Rio Tinto deferred a decision on a planned expansion to 320 million tonnes by 2012. which in September 2008 found in favour of Fortescue gaining access to the rail line. The increased output will come from both new operations and expansion at existing mines. the Federal Treasurer declined to follow the recommendation that the railway line be declared open. In October 2008. However. in December 2010 the company announced it had approved US$1. Although the NCC found in favour of Fortescue Metals Group. The investment will add 27 million tonnes per year of capacity to the company’s wholly owned Brockman 4 and Western Turner Syncline mines. which involves rail and port expansions and an increase in iron ore mining capacity to 205 million tonnes per year. During the height of the global financial crisis. As part of that expansion. BHP Billiton’s Rapid Growth Project 4 has added about 25 million tonnes of iron capacity since 2010. However.www. has been the subject of considerable controversy. Fortescue Metals Group completed construction of its 55 million tonne per year Pilbara Iron Ore project in mid-2008. This decision was only partly backed by the Australian Competition Tribunal. but temporarily postponed a Expansions at a number of iron ore projects will come fully onstream over the next few years planned expansion to 80 million tonnes per year.2 billion of spending to lift its Pilbara iron ore output to about 283 million tonnes by the end of 2013. A relatively new entrant to the industry.Au Iron Ore Mining in Australia August 2011 8 Industry Performance Industry Outlook continued consequent increases in steel demand and the world’s appetite for iron ore will underpin the growth. BHP Billiton plans to lift the capacity of its iron ore mines and associated infrastructure to 350 million tonnes. The issue of small miners gaining access to transport infrastructure is likely to be hotly contested by both those miners and major players for several years. It supported declaring BHP Billiton’s Goldsworthy railway open to other users. Mindy Mindy. Australia’s iron ore production and exports are forecast to total 700 million tonnes and 665 million tonnes respectively. Another Fortescue Metals project. as Australia and Brazil are the world’s lowest cost producers of iron ore. . plans for a large-scale expansion were quickly reactivated. by October 2009 it had upgraded its longterm iron ore expansion plans to 330 million tonnes per year.

the industry will pay an effective carbon price on transport fuels used in mining operations through reductions in fuel tax credits for fuel used in mining operations. The iron ore pellet production plant in Tasmania plans to claim assistance as an emissionsintensive. allowing existing projects to use market value or book value in writing off the capital base. Key elements include a headline tax rate of 30. Rising iron ore production will more than offset the effect of weaker prices on industry revenue. The project relies on the WA Government’s promise to develop a new rail line and deep-water port at Oakajee.0% imposed on profit after a return equal to the longterm government bond rate has been achieved plus 7.IBISwOrLd.0%. near Geraldton. the immediate write off of investment made after 1 July 2012 for the purposes of the MRRT.COM. Japan was overtaken by China as the largest purchaser of Australian iron ore in 2004-05. Midwest. Taxing The Federal Government plans to impose an MRRT on iron ore and coal from 1 July 2012. China will become increasingly important as an investor in the industry Sinosteel Midwest Corp is pursuing development of the Chinese Government’s first wholly owned substantial iron ore project in Australia. In early 2011. starting at $23 per tonne of carbon dioxide equivalent emitted. yielding growth of 4. while the Federal Government has plans to introduce a Mineral Resource Rent Tax (MMRT) and a carbon tax from July 2012. Profit is expected to increase a little more slowly due to cost pressures and new taxes. Under the carbon pricing arrangements. and China is expected to retain this position and become increasingly important as an investor in the industry over the next five years. and a 25. credits for state royalty payments.Au Iron Ore Mining in Australia August 2011 9 Industry Performance A little moderation Iron ore prices (in US dollars) are expected to ease over the five years through 2016-17 in response to surging global supply.3% per annum over the five years through 2016-17.0 million per year. .0% extraction allowance. Sinosteel was negotiating a mining agreement with the traditional Aboriginal owners of the project site. when it bought out its former joint venture partner. trade-exposed operation under the Government’s Jobs and Competitiveness Program. The Weld Range project has been fully owned by Sinosteel since 2008.www. The re-emergence of skill shortages is expected to push up wage rates.5% and is intended to recognise the contribution made by the miner. which would provide it with free carbon permits covering the bulk of its emissions. Its Weld Range project in Western Australia is expected to have annual output capacity of 15 million tonnes per year.5% over the following two years. Australian dollar iron ore prices will ease more slowly due to an expected weakening of the local currency. through which Sinosteel ships its iron ore back to China.9 billion in 2016-17. which reduces the effective MRRT rate to 22. Industry revenue is forecast to reach $69. The price of carbon permits will increase by 2. Greenhouse gas emissions will also be taxed from 1 July 2012. exemptions for small projects with resource profits of less than $50. before a marketbased emissions trading scheme commences on 1 July 2015.

developed technology and markets Key Features of a Growth Industry Revenue grows faster than the economy Many new companies enter the market Rapid technology & process change Growing customer acceptance of product Rapid introduction of products & brands 20 Iron Ore Mining 15 Quantity Growth Mining Services 10 Many new companies. minor growth in economic importance.IBISWORLD.COM.AU .www.COM.Au Iron Ore Mining in Australia August 2011 10 Industry Performance Life Cycle Stage The technology used to mine and transport iron ore is well established Firms have been engaged in mining iron ore for several decades Industry output is expanding rapidly % Growth of profit/GdP 30 25 Company consolidation. level of economic importance stable Maturity Quality Growth High growth in economic importance.IBISwOrLd. substantial technology change 5 Copper Ore Mining 0 Shakeout Petroleum refining Bauxite Mining Shakeout -5 decline -10 -10 -5 Crash or Grow? Iron and Steel Manufacturing Future Industries 0 5 10 Potential Hidden Gems 15 20 Time wasters Hobby Industries 25 30 % Growth of establishments SOURCE: WWW. weaker companies close down.

Chinese participation in the industry is expanding. Price rises well above inflation levels are producing even stronger growth in industry value added. Although the industry’s products are well known rather than new and the technology employed is well established.Au Iron Ore Mining in Australia August 2011 11 Industry Performance Industry Life Cycle This industry is Growing The Iron Ore Mining industry is growing. This strong performance reflects the emergence of China as a major market. albeit from a very small base.www. with expected industry revenue growth outstripping GDP growth over the five years through 2011-12. . Iron ore production is rising rapidly.IBISwOrLd.COM.

www. rail Freight Transport in Australia Iron ore is transported from ports by rail.6bn SOURCE: WWW. Iron ore pellets account for less than 1% of output. Petroleum refining in Australia This industry supplies fuel for vehicles used in iron ore mining. There has been a corresponding decline in the share of lump ore. making it easier to handle. Metal and Mineral wholesaling in Australia Metal and mineral wholesaling firms play a key role in iron ore exports. There is little year-to-year variation in these shares.IBISWORLD. Products & Services The Iron Ore Mining industry produces lump ore (6 millimetres to 30 millimetres). KEy SELLING INduSTrIES B1520 C2510 d3611 F4522 I6201 I6301 I6623 Mining Services in Australia Iron ore mining makes use of contract miners. This gradual shift reflects the nature of iron ore deposits.3% Lump ore 27. Fines account for the largest share of production (about 72%). Lump ore attracts the highest prices as it requires less processing by steelmakers before use. International Sea Transport in Australia Iron ore is exported using international sea transport. which typically contain a larger proportion of fines than lump ore. Port Operators in Australia The bulk of iron ore output is exported through ports. but the proportion of fines in total output has edged up slightly over the past five years from 70% in 2006-07.IBISwOrLd.7% Iron ore fines 72% Total $56. iron ore fines (less than 6 millimetres) and iron ore pellets.AU .Au Iron Ore Mining in Australia August 2011 12 Products & Markets Supply Chain KEy BuyING INduSTrIES C2711 Supply Chain | Products & Services | demand determinants Major Markets | International Trade | Business Locations Iron and Steel Manufacturing in Australia Iron ore mining’s only major customers are basic iron and steel manufacturers. Steel manufacturers typically put fines through a sintering process to agglomerate the ore. followed by lump ore (nearly 28%). Products and services segmentation (2011-12) Iron ore pellets 0.COM. Electricity Generation in Australia Iron ore miners (especially producers of iron ore pellets) make great use of electricity.COM.

The Iron Ore Mining industry’s only major domestic customer is the Iron and Steel Manufacturing industry. Not only do these customers enjoy cost advantages compared with other producers dealing with steel (enabling them to succeed in export markets for steel). motor vehicle manufacturing. Four markets account for virtually all of Australia’s iron ore exports: China (68. they also typically supply product to the rapidly growing steel consuming industries in their own region. the countries of the former Soviet Union and China.COM.IBISWORLD. All growth in demand for Australian iron ore over the past few years has come from China. most notably construction. coal washing and water purification. Australia is the second largest exporter behind Brazil. Major Markets The bulk of output (typically 95% by value) is exported to steel manufacturers overseas. In turn.5%). Japan (18. Its major export customers are steel manufacturers in Asia. Since that time prices have been agreed on a quarterly basis.AU . 5% Overseas steel manufacturers 95% Total $56.6bn SOURCE: WWW.5%). The great bulk of Australia’s iron is sold under contract. and until the start of the Japanese financial year on April 1. when it displaced Japan in 2004-05.COM. Small quantities of iron oxide minerals are also used in cement manufacturing. shipbuilding. China became the major export destination for Australian iron ore relatively recently. Australia is a major producer of iron ore.0%) and Taiwan (3.www. contract prices were negotiated with major customers on an annual basis. The demand for iron ore is therefore heavily dependent on the volume of steel production. 2010.0%). South Korea (10.IBISwOrLd.Au Iron Ore Mining in Australia August 2011 13 Products & Markets demand determinants The most important use for iron ore is as the primary input to iron and steel making. In terms of the international iron ore trade. demand for steel depends on levels of activity in a range of industries. but Major market segmentation (2011-12) Domestic iron and steel manufacturers major producers and some smaller ones are pushing for a move to monthly price setting. generally ranking in the top four with Brazil. plant and equipment manufacturing and consumer goods manufacturing.

Australia is the world’s largest iron ore exporter. the value of exports has exceeded industry revenue. Imports From.www.5 million tonnes in 2004-05. Occasionally. All the growth in demand for Australian iron ore over the past few years has come from China. South Korea and Taiwan.3 billion in the previous year. much higher iron ore prices from April 1.COM. Exports are expected to be about 435 million tonnes in 2011-12..0 million tonnes by 2009-10. As both the values of imports and of domestic demand are small compared with exports and total revenue. Japan.COM. reflecting the export of product mined in a previous year. South Korea Industry trade balance 100000 80000 60000 40000 20000 −0 Year 04 Exports 06 08 10 12 14 16 18 Imports Balance SOURCE: WWW. As well as higher export volumes. most of which consists of fines from India.. compared with 403 million tonnes valued at $47. Indeed. As well as being a major iron ore exporter.4bn Total $468. the value of imports may exceed domestic demand when exports are made from stocks. Four markets account for virtually all Australia’s iron ore exports: China.9m SOURCE: ABS . Differences between export shares by volume and value are due to variations in the mix of product exported and that used by domestic industry. valued at $52.4 billion.1 million tonnes in 2009-10..Au Iron Ore Mining in Australia August 2011 14 Products & Markets International Trade Level & Trend Imports in the industry are Medium and Steady $ million Exports in the industry are High and Steady The great bulk of Australia’s iron ore is exported..IBISwOrLd. Australia also imports iron ore. displacing Exports To. Exports typically amount to about 90% of industry output by volume and about 95% by value.IBISWORLD.AU Japan. The only substantial local consumers of iron ore are OneSteel Ltd and BlueScope Steel Ltd. 2010 contributed to the increase. China became the major export destination for Australian iron ore in 2004-05. Imports totalled about 5. 10% Taiwan 3% 68% China Other New Caledonia Indonesia 19% Japan 5% 5% Philippines 5% 80% India 5% Year: 2011-12 SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA Total $52. Australia’s iron ore exports to China amounted to 99. but had reached nearly 266.

COM.www.8 SA 2.5 NSw 0.Au Iron Ore Mining in Australia August 2011 15 Products & Markets Business Locations 2011-12 NT 0.0 wA 96.7 SOURCE: WWW.IBISwOrLd.IBISWORLD.0 VIC 0.0 QLd 0.0 ACT 0.0 Iron ore production (%) Cold Zone (<10) <25 <50 Hot Zone (<100) Not applicable TAS 0.COM.AU .

IBISwOrLd. Relatively small quantities of iron ore are mined in South Australia (about 2.COM. Iron ore is also mined at Savage River in Tasmania and is processed into iron ore pellets.www.COM. due to a decision by OneSteel to develop and mine a magnetite iron ore resource in that state.AU . Distribution of iron ore production vs. about half of which are used domestically with the remainder destined for export.IBISWORLD. Nearly all of Australia’s iron ore is mined in Western Australia (about 98.5% of output).6%) and most of this output is exported. with production dedicated to domestic steel. population 125 100 Percentage 75 50 25 0 VIC ACT QLD NSW TAS WA NT SA Iron ore production Population SOURCE: WWW.Au Iron Ore Mining in Australia August 2011 16 Products & Markets Business Locations The geographic spread of iron ore output reflects the location of the mineral resource. the output is used by the company in its steel making operations. The importance of South Australia has increased since 2006-07.

3 12. They may either construct their own railways or gain third-party access to existing facilities. The industry’s reliance on large-scale equipment operating in inhospitable surroundings leads to substantial spending on repairs. The industry has steadily increased its use of contract miners since industrial relations laws began to be liberalised in the 1990s. and administrative expenses) account for about 6% of revenue. hiring and leasing.www. and chemicals used in beneficiation processes. Their mines are located in the Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalisation Concentration in this industry is High Pilbara region of Western Australia.COM. Economies of scale Large-scale mining operations possess both cost and negotiating benefits.0 16. Rio Tinto and BHP Billiton accounting for almost 90% of output. high-grade reserves of iron ore lowers the costs of production and leads to more robust prices. Effective cost controls A lean operation is far more likely to survive downturns in demand or price if it has close control over costs. Although new firms such as Fortescue Metals Group have entered the industry.Au Iron Ore Mining in Australia August 2011 17 Competitive Landscape Market Share Concentration Level The Iron Ore Mining industry is highly concentrated. with mines operated by the two largest firms. Other major costs include freight (about 4% of revenue). All other costs (e. Downstream ownership links Ownership links with local and overseas steel manufacturers permits easier access to markets when demand is weak. motor vehicle expenses. but must also cover depreciation and items such as royalties.0 7.0 35. leaving about 56% of revenue to provide a return to capital. Raw materials used include items such as explosives to break-up both the soil covering the deposits and the iron ore itself. fuel.g. The most important for this industry are: Availability of resource Access to large.AU 36.7 31.COM.6 7. which absorb 13% and 16% of revenue respectively. Access to rail and port facilities Firms must be able to access rail and port facilities to export their output. Key Success Factors IBISWorld identifies 250 Key Success Factors for a business.5 Profit . wages Industry costs and average sector costs Industry costs (2011-12) Average costs of all industries in sector (2011-12) (3%) and repairs and maintenance (2%). This share not only provides a pre-tax profit. payments to contractors have grown in importance.IBISWORLD. the two major players will remain the dominant producers for the next five years. As a result. Cost Structure Benchmarks The major cost items faced by the Iron Ore Mining industry are payments to contractors and materials.0 0. Similar arrangements apply to ports.IBISwOrLd. The industry’s depreciation cost amounts to about 5% of revenue.0 Profit 5. ■ Profit ■ rent ■ utilities ■ depreciation ■ Other ■ wages ■ Purchases 100% 45.8 3.1 SOURCE: WWW.

attempted to gain access to these railway lines using access regime provisions in the Competition and Consumer Act. but also against operators in other countries. Basis of Competition Level & Trend Competition in this industry is High and the trend is Steady The market for iron ore is a global one and local producers compete not only against each other. the resulting growth in the wage bill has been swamped by rising revenue. the Australian Treasurer may still overrule it if the arrangement is deemed not to be in the nation’s best interests. A smaller producer. .www. Although employment and wages per employee have increased since that time. the price for different types of ore takes into account variations in quality. The Federal Court ruled against Fortescue gaining access to Rio Tinto’s iron ore railways in May 2011. Large producers such as BHP Billiton and Rio Tinto own and operate railway lines dedicated to the transport of iron ore. Rio Tinto and BHP Billiton secure a premium for their iron ore from buyers in Asia.COM.IBISwOrLd.AU owned firm Chinalco gained FIRB approval in 2008 for its acquisition of a 9. However.0% stake in Rio Tinto. with higher grade lump ores attracting higher prices. New entrants require the skill to engage in negotiations with local communities likely to be affected by a mine. such as the security and reliability of supply and the diversification of supply sources. Fortescue Metals Group Ltd. Large amounts of capital (typically hundreds of millions of dollars) are required to establish a new mine or acquire existing operations. Barriers to Entry Level & Trend Barriers to Entry in this industry are High and Steady Barriers to entry into the Iron Ore Mining industry are high. based on lower shipping costs from Australia compared with iron ore of comparable quality sourced from Brazilian producers. play secondary roles in competition between iron ore suppliers in world markets. reducing the share of revenue available as profit before tax and interest to about 45%.Au Iron Ore Mining in Australia August 2011 18 Competitive Landscape Cost Structure Benchmarks continued while royalties account for about 6%. Prospective miners are also likely to require the skills to negotiate rail access agreements with BHP Billiton and Rio Tinto. Foreign businesses seeking to enter the industry must gain approval from the Foreign Investment Review Board (FIRB).IBISWORLD. Iron ore is essentially bought and sold on the basis of price. Even if a planned foreign acquisition gains FIRB approval. The Chinese Government- Barriers to entry checklist Competition Concentration Life cycle stage Capital intensity Technology change Regulation and policy Industry assistance Level High High Growth High Medium Heavy Low SOURCE: WWW. Other factors. The share of revenue used to fund wages has fallen from about 5% in 2006-07.COM. This requires convincing buyers that the ore mined will be of suitable quality and that long-term supply can be guaranteed. BHP Billiton’s Goldsworthy rail line is the only major iron ore mine to port railway declared as open to third-party access under the Act. Both BHP Billiton and Rio Tinto vigorously oppose opening their railway lines to other producers. New entrants must obtain long-term contracts to gain some security.

COM. BHP Billiton and Rio Tinto. exports are also extremely important to the industry. The two major participants. economic and political risks associated with dealing in foreign countries. Exports offer growth opportunities for firms.AU .www.Au Iron Ore Mining in Australia August 2011 19 Competitive Landscape Industry Globalisation Level & Trend Measures such as the level of foreign ownership indicate that globalisation of the Australian Iron Ore Mining industry is high. are both dual listed and have substantial foreign interests in local industry activity.IBISwOrLd.COM.IBISWORLD. Trade Globalisation 200 150 100 50 0 Going Global: Iron Ore Mining 1992-2011 Global Exports/revenue 200 Export 150 100 50 0 Export Global Exports/revenue Iron Ore Mining 2011 1992 Local 0 40 80 120 Import 160 Local 0 40 80 120 Import 160 Imports/domestic demand Imports/domestic demand SOURCE: WWW. Import competition can bring a greater risk for companies as foreign producers satisfy domestic demand that local firms would otherwise supply. However there are legal. Globalisation in this industry is High and the trend is Increasing International trade is a major determinant of an industry’s level of globalisation.

Ore is mined at several sites in Western Australia before being transported to the company’s port at Dampier for export. leapt in 2010 as production and prices both rose strongly. 142. production was rapidly restored and expanded as markets recovered. compared with 161. The other joint venture partners are Mitsui Iron Ore Development Pty Ltd (33. then one of Australia’s large iron ore miners and the major participant in the Robe River joint venture. Rio Tinto’s share of output from Hope Downs was 5.COM. Work on the 22 million tonne per year project commenced in April 2006 at a cost of US$1.0% Rio Tinto Limited participates in the industry via Hamersley Iron Pty Ltd (a wholly owned subsidiary).www. including the port.AU Player Performance rio Tinto Plc – rio Tinto Limited Market share: 41. Rio Tinto lifted the nameplate capacity of the Cape Lambert port from 55 million tonnes to 80 million tonnes of iron ore per year in 2008.IBISwOrLd. rising to 10. Rio Tinto had previously outlined plans to boost its capacity in the Pilbara. The Robe River operations extract ore at the East Deepdale deposits at Pannawonica and transport it by rail to Cape Lambert. the Robe River joint venture (53% Rio Tinto) and Hope Downs (50% Rio Tinto).9 million tonnes in 2010 due to the expansion. In 2002.Au Iron Ore Mining in Australia August 2011 20 Major Companies Major players (Market share) rio Tinto Plc . rail and port capacity in the Pilbara is matched.0 million tonnes in 2010. Rio Tinto also holds a 50% stake in the Hope Downs mine.5 million tonnes in 2008. As a result.0 billion and production commenced in late 2007.5%). where it is crushed and screened prior to being exported as fines.COM.rio Tinto Limited 41. located 50 kilometres from its Yandi and West Angelas operations. Revenue and profit from Rio Tinto’s Australian iron ore operations.0% 12. After acquiring Robe River. and capable of exporting 220 million tonnes per year. The acquisition by Rio Tinto was prompted by the desire to extract synergies from mine development and production. to 320 million tonnes by 2012 at a cost of about US$10 billion. In August 2000. the Hamersley power grid was extended to include Robe River’s new West Angelas mine and the Pilbara Rail Company was formed to integrate the rail networks of the two operations. Rio Tinto’s output from its iron ore mines in Australia amounted to 176. However. In August 2007. Most operations other than the Channar mine (60% Hamersley and 40% China Metallurgical Import and Export Corporation) are wholly owned by Rio Tinto. Nippon Steel Australia Pty Ltd (10.1 million tonnes in 2008 and 135. Rio Tinto announced that it was embarking on a fast-tracked expansion of the project to lift capacity at Hope Downs to 30 million tonnes per year. It was a .0%). and reduce costs.0% rio Tinto Plc .9 million tonnes in 2009.5%) and Sumitomo Metal Australia Pty Ltd (3. A decision on further expansion of the port was delayed in the wake of the softening iron ore market and Rio Tinto’s need to refinance debt. the company’s mine. Overall. Rio Tinto pursued cost savings and operational benefits from integrating aspects of that operation and Hamersley.0% SOURCE: WWW.0% Other Fortescue Metals Group Limited 10.rio Tinto Limited | BHP Billiton Limited Fortescue Metals Group Limited | Other BHP Billiton Limited 37. converted from US dollars at the average exchange rate. Production for 2008 was lower than originally envisaged by Rio Tinto.3 million tonnes in 2009 and 15. Hamersley Iron is Australia’s largest producer of iron ore.IBISWORLD. The global financial crisis caused the miner to slash its planned iron ore output in the final quarter of 2008. Rio Tinto acquired North Ltd.2 million tonnes in 2007.

reflecting a substantial increase in output and much higher prices.670 9. offering three of its own shares for each Rio Tinto share. The 3. Rio Tinto and Chinalco unveiled plans for Chinalco to increase its holding in Rio Tinto by 18% and take direct ownership positions of 15% to 50% of Rio Tinto’s iron ore.7 9. the WA Government indicated it would use the merger to end the concessional royalty rate applicable to the two companies on some projects. South Korea.Au Iron Ore Mining in Australia August 2011 21 Major Companies Player Performance continued marked change from 2009. copper and aluminium businesses and becoming an equal partner in an iron ore marketing company that was to sell 30% of the output from the Hamersley iron ore operations.8 73.625% rate that applies to fines extracted from all recent iron ore projects in Western Australia. A large part of the increase in revenue flowed through to earnings before interest and tax.9 7. alumina and aluminium projects.9 Employees 4.5 20. In November 2007. The plan also involved Chinalco entering into a strategic alliance with Rio Tinto in its iron ore.6 -23. Revenue expanded strongly in 2007 and 2006.0 63. Rio Tinto rejected the offer and subsequent higher offers. purchased a 9% stake in Rio Tinto in February 2008 (currently 10%).679 7. Chinese buyers of iron ore and.3 16. instead favouring a planned merger of its iron ore interests in the Pilbara with those of BHP Billiton. Rio Tinto withdrew from the deal in June 2009. but concerns over the planned deal have been expressed by regulators in Japan. coal expressed their concern over the increase in concentration represented by a possible merger between BHP Billiton and Rio Tinto. to a lesser extent. applied to iron ore projects in the 1960s to encourage companies to build infrastructure.839 5. Earnings before interest and tax followed a similar path to revenue. stating that they undervalued the company. Revenue surged in 2008.6 NPBT ($ billion) 4.COM.332 7.5 (% growth) 34.2 4. In February 2009. Rio Tinto and BHP Billiton secured price rises of about 85% at that time.75% royalty rate. Rio Tinto’s interest in the deal stemmed largely from the capital injection it represented. the Pilbara merger was expected to save BHP Billiton and Rio Tinto about $10 billion in operating costs.0 22. other shareholders did not approve of the deal with Chinalco and it was unclear whether it would gain approval from the Foreign Investment Review Board. In addition.1 14.9 110.1 -13. given the substantial debt it carried due to its acquisition of Alcan Inc in late 2007. when lower iron ore prices more than offset higher output levels and a weaker Australian dollar. The Chinese Government-owned firm Chinalco.9 (% growth) 30. BHP Billiton made merger overtures to Rio Tinto Limited.IBISwOrLd.7 9.014 SOURCE: AnnUAL REPORT .6 15. However.2 103. reflecting higher tonnages and much higher iron ore prices from 1 April 2008. which has substantial operations in the aluminium industries.www.8 11. At that time. Europe and Australia. would be lifted to the 5. bauxite. The global financial crisis and concern over Rio Tinto’s debt levels caused BHP Billiton to withdraw its merger bid in December 2008. In October rio Tinto Limited (iron ore segment) – financial performance year* 2006 2007 2008 2009 2010 *year end december revenue ($ billion) 7.

The ventures comprise the Mount Newman Joint Venture. compared with 106.9 million tonnes of iron ore in 2009-10.9 6. 29 and 30. the WA Government indicated that it would use the merger to end the concessional royalty rate applicable to the two companies on some projects. In June 2009. Processing and shipping facilities are located at Nelson Point and Finucane Island.6 6.4 6.1 5. All the mining operations have some ore processing capability at the mine sites.0 8. Port Hedland. cyclones and spiral-circuit techniques to separate the heavier iron ore from the lighter overburden materials. 91. Rio Tinto and BHP Billiton announced they had abandoned plans for the merger of their Pilbara iron ore production operations. and Yarrie. and the other 210 kilometres from the Yarrie mine.5 12.1 million tonnes in 2008-09. The Mount Whaleback beneficiation plant treats ores using a heavy medium (ferrosilicon).3 68. Yandi Area C.1 10. The company has two beneficiation facilities.2 9. Jimblebar.7 EBIT ($ billion) 2. The other participants in the first three ventures are Japanese groups.8 (% growth) 70. However. BHP Billiton mines ore via a number of joint ventures.0 SOURCE: AnnUAL REPORT .7 51. citing opposition from regulatory authorities in several countries.Au Iron Ore Mining in Australia August 2011 22 Major Companies Player Performance continued 2010. Europe and Australia.COM.4 13.6 (% growth) 42.www. Once the ore is processed at the mines. In addition. 103.8 million tonnes in 2007-08.0% BHP Billiton Limited and its subsidiaries are major producers of iron ore. 25.6 million tonnes in 2006-07 and 89. concerns over the plan have been expressed by regulators in Japan.6 million tonnes in 2005-06. nearly all of which is produced in Australia. BHP Billiton operates two heavy haulage railroads to Port Hedland.6 43.9 3. BHP Billiton’s operations in Western Australia produced 113. The Finucane Island beneficiation plant uses a similar process to upgrade ore from Yarrie through a wet high-intensity magnetic separation circuit and spirals and jigs.6 -6. The planned new production joint venture (with each party holding 50%) was expected to result in substantial savings in operating costs (estimated at $10 billion). one at Mount Whaleback and the other at Finucane Island.IBISwOrLd. Player Performance BHP Billiton Limited Market share: 37. the Goldsworthy Joint Venture. From there. BHP Billiton and Rio Tinto announced plans to merge their Pilbara iron ore operations in Western Australia. BHP Billiton’s mining operations (via these joint ventures) comprise Mount Whaleback and nearby satellite ore bodies 23.9 61. South Korea. it is stockpiled over railway load-out facilities.0 -19. the Area C Joint Venture and the Yandi Joint Venture. one running 426 kilometres from Newman and the Yandi and Area C mines. drums. it is loaded into ore cars for railing to Port Hedland. In BHP Billiton Limited (iron ore segment) – financial performance year 2005-06 2006-07 2007-08 2008-09 2009-10 revenue ($ billion) 5. while the South Korean steelmaker POSCO has an interest in the Area C Joint Venture. in which it holds an 85% interest.

the company maintained production levels by selling onto the spot market. more than offsetting lower iron ore prices and a stronger US dollar. Shipments amounted to 7. The commencement of ore shipments resulted in the company moving into a profit-making position in 2008-09. Shipping from the project commenced in May 2008 and project completion was achieved within months. Instead.www. Construction of its port. and in 2006 completed a further expansion to 8.0 million tonnes. A small increase in production and higher prices boosted performance in 2006-07. Despite much higher iron ore output.7 (% change) n/C 1. Portman operates the Koolyanobbing and Cockatoo Island iron ore projects in Western Australia. partly associated with mine expansion. Portman has progressively expanded capacity at Koolyanobbing from 2. Profit fell in 2009-10. Profit fell more than revenue as costs increased. Christmas Creek.150 48 NPAT ($ million) -861 683 659 SOURCE: AnnUAL REPORT Other Companies Portman Ltd Estimated market share: 2. citing opposition from regulatory authorities in several countries.0 million tonnes of iron ore per year. rail and mine project (Cloudbreak) in Western Australia commenced in February 2006. A second mine site. Capacity at Christmas Creek is being ramped up to permit a total output 55. rising to 41.0 million tonnes.IBISwOrLd. Unlike Rio Tinto.0% Fortescue Metals Group Limited is a relatively recent entrant to the industry.2 2. was established in May 2009.5 million tonnes to 5.5% Portman Ltd became a wholly owned subsidiary of US iron ore miner Cliffs Natural Resources Limited at the end of 2008. Fortescue Metals Group Limited – financial performance year 2007-08 2008-09 2009-10 revenue ($ billion) 0. reflecting rising costs.4 million .5 3.COM. but extremely large gains were made in 2005-06 due to higher output and much higher iron ore prices. It had been majority owned (just over 80%) by Cliffs since April 2005.0 million tonnes. The volume of ore mined in 2008-09 amounted to 31. Company revenue increased strongly in 2009-10 on the back of higher iron ore production. soared in 2008-09 and 2007-08 on the back of rising output and higher prices (particularly in 2008-09). Revenue and profit. BHP Billiton opted not to slash its iron ore production in late 2008.3 million tonnes in 2009-10. although these sales attracted a lower price than those made under long-term contracts. Rio Tinto and BHP Billiton announced they had abandoned plans for the merger of their Pilbara iron ore production operations.Au Iron Ore Mining in Australia August 2011 23 Major Companies Player Performance continued October 2010. converted from US dollars at the average exchange rate. BHP Billiton’s iron ore revenue (in Australian dollars) fell in 2009-10 due to lower iron ore prices and a stronger Australian currency. Player Performance Fortescue Metals Group Limited Market share: 10.

compared with 1. but Jiangsu Shagang is undertaking work to expand mine life by about 15 years. Ivanhoe sold ABM to a subsidiary of Stemcor Holdings Limited on 1 March 2005. The operation was acquired by ABM from the US firm Pickands Mather and Co International in March 1997. The purchase price consisted of two equal payments totalling US$21. finished product marketing and trade finance. Portman’s profit fell in 2007 as a result of much higher costs.COM.2 million tonnes per year in the early 2000s. about half of which was exported. In 2007.www. The removal of about 56 million tonnes per year of overburden by truck and shovel will provide six million tonnes per year of magnetite ore to produce about 2. The transaction was completed in February 2006. Magnetite concentrate is pumped from the mine site to the pellet plant via a pipeline.7 million in 2006 and 5. reflecting higher levels of production and substantially higher iron ore prices. . with an expected mine life of 25 years.8 million tonnes and 718. and in November 2005 Leighton Contractors announced that it was acquiring the business.Au Iron Ore Mining in Australia August 2011 24 Major Companies Other Companies continued tonnes in 2007. an Australian subsidiary of the Chinese steel producer Jiangsu Shagang Group Co. The mine has had several ownership changes in the past 15 years. Portman also stated that it was experiencing marked skill shortages. Profit before tax for the first six months of 2008 more than doubled. the holding company for the operation from Stemcor Holdings. After rising strongly over 2003 to 2006 on the back of higher revenue. Portman Mining and the failed contract miner Henry Walker Eltin Ltd were equal joint venturers in the project. became the majority owner of the Savage River iron ore mine and associated pelletising plant in mid-2007. Shipments from Cockatoo Island amounted to 1. up from 6. plus a series of contingent.5 million tonnes in 2006. Pickands Mather ceased mining at Savage River in the previous year because it did not believe that additional iron reserves could be won cost-effectively.000 tonnes respectively in 2006-07.6 million tonne per annum (of concentrate) operation. while the pellet plant is about 85 kilometres away at Port Latta. Output and exports eased to 1. from the corresponding period of the previous year. making Leighton Contractors the new 50% equity holder in the Cockatoo Island project. The Stemcor Group is a global provider of specialist services to steel industries in areas such as raw materials supply.6% Shagang Mining Pty Ltd. ABM spent about $110 million rebuilding the Savage Creek operation as a 2. Portman Mining’s revenue from its iron ore operations has grown rapidly over the past few years. Production at Savage River dipped to 1. it purchased 90% of Australian Bulk Minerals (ABM).1 million tonnes per year to 2.3 million.4 million tonnes of iron ore pellets. Pellet production at Port Latta amounted to 2. with about 1. escalating-scale annual payments based on the Japanese steel mills iron ore pellet price. Ltd Estimated market share: 0.9 million tonnes in 2005-06.3 million tonnes in 2007. The iron ore mine is located at Savage River. work started on a major pre-strip operation designed to extend the life of the Savage River mine through to 2022.IBISwOrLd.8 million tonnes in 2005. The mine had been due to close in 2009. Only half-year results are available for 2008 (January to June).5 million. Ltd.5 million tonnes per year of concentrate for pellet production. The Cockatoo Island project reprocesses stockpiles of iron ore left behind from earlier mining operations. At that time. Jiangsu Shagang Group Co. Canada-based Ivanhoe Mines Ltd acquired ABM at the end of 2000. but these show a 56% increase in revenue to $412.1 million tonnes exported. Henry Walker Eltin was placed into administration in early 2005. Production at Savage River amounts to 2.

The industry’s ratio of wages to depreciation is about 1:1. SOURCE: WWW. Mining.0 0.Au Iron Ore Mining in Australia August 2011 25 Operating Conditions Capital Intensity Level The Iron Ore Mining industry is capital intensive.0 Capital intensity The level of capital intensity is High Economy Mining Iron Ore Mining Dotted line shows a high level of capital intensity SOURCE: WWW.IBISwOrLd. Brand awareness and niche labour skills are key to product differentiation. Capital Intensive Labour Intensive Iron Ore Mining Mining Services Copper Ore Mining Iron and Steel Manufacturing Bauxite Mining Petroleum refining Old Economy Traditional Service Economy wholesale and retail.5 0.6 billion.AU Change in Share of the Economy . Much of the capital is tied up in land and heavy earthmoving equipment. Firms benefit from personal wealth so stable macroeconomic conditions are imperative. During 2006-07 (the latest year for which this information is available).www. Functions cannot be outsourced therefore firms must use new technology or improve staff training to increase revenue growth. as illustrated by the large share of value added accruing to capital (profit. a stable macroeconomic environment and a sound investment plan.IBISWORLD. highlighting the capital intensive nature of the industry. the industry’s capital spending has grown substantially over the five years through 2011-12 as new mines and mine expansions came onstream to supply rapid growth in iron ore demand. depreciation and interest). Personal Services. high-value products. Finance and real Estate. While year-to-year swings in capital spending are not unusual.COM.5 1. Communications. Investment Economy Information. Health and Education. Agriculture and Manufacturing.7. Reliant on labour rather than capital to sell goods. To increase revenue firms need superior debt management.COM. To expand firms must merge or acquire others to exploit economies of scale.0 1.IBISWORLD. the Iron Ore Mining industry’s net capital expenditure amounted to $4. Traded goods can be produced using cheap labour abroad.COM. particularly from China.AU Tools of the trade: Growth strategies for success New Age Economy recreation. or specialise in niche. Capital Intensity | Technology & Systems | Industry Volatility regulation & Policy | Industry Assistance Capital units per labour unit 2.

air emissions and the use. Iron ore prices are determined on global A higher level of revenue volatility implies greater industry risk.www.COM. or capacity constraints if it rises quickly. such as the time frame for capital investment. growth 1000 Hazardous rollercoaster revenue volatility* (%) 100 10 1 0. contractors and visitors. rising sharply in response to supply shortfalls and falling just as quickly if oversupply emerges. Overburden (soil overlaying the deposit) is removed using heavy earthmoving equipment. commonly known as the Mabo legislation. revenue Volatility Level The level of Volatility is Very High This industry’s performance is characterised by high levels of revenue volatility. Volatility vs. reflecting variations in mining conditions and decisions to open mines. Large shifts in iron ore prices are the norm and the main factor contributing to revenue volatility. Iron ore prices are denominated in US dollars and. . The industry is also open to native title claims under the Native Title Act 1993. issue exploration and mining leases and collect royalties from producers. Substantial year-to-year shifts in output occur.1 Iron Ore Mining Stagnant –30 –10 10 30 50 Blue chip 70 Five year annualised revenue growth (%) * Axis is in logarithmic scale SOURCE: WWW. handling and disposal of hazardous materials and waste. Firms in the industry are required to comply with federal and state government occupational health and safety regulations and other mandatory requirements for employees. State governments determine what land is open to exploration and mining.IBISwOrLd. These are baked to yield pellets that are roughly the size of marbles. as a result. again using earthmoving machinery. markets and reflect the dynamic nature of the supply and demand balance.IBISWORLD. Often ore from several pits is blended to meet customer specifications.AU regulation & Policy Level & Trend The level of Regulation is Heavy and the trend is Steady The Iron Ore Mining industry is highly regulated.COM. The ore may then be crushed to size if required. Iron ore pelletising involves mixing iron ore fines or crushed iron ore with bentonite (a type of clay) to form small balls. fluctuations in the value of the Australian dollar against the US dollar add to volatility. The iron ore is extracted.Au Iron Ore Mining in Australia August 2011 26 Operating Conditions Technology & Systems Level The level of Technology Change is Medium Iron ore is mined using fairly straightforward methods. with state governments in particular overseeing nearly all aspects of operation. Volatility can negatively affect long-term strategic decisions. When a firm makes poor investment decisions it may face underutilised capacity if demand suddenly falls. Once iron ore mines are operational. firms are subject to environmental laws and regulations dealing with noise. The fuel used to bake the pellets represents a major cost in iron ore pelletising. The resulting product is railed to the port for shipment.

0%. The Government plans to impose the carbon tax on this type of fuel use by reducing the fuel tax credit currently available.6%. Under the fuel tax credits system. Industry Assistance Level & Trend The level of Industry Assistance is Low and the trend is Steady The Iron Ore Mining industry is not protected by tariffs and does not receive any non-tariff import protection. Participants in the industry do have access to the Federal Government’s fuel tax credit scheme.5% over the following two years. replacing the previous Energy Grants Credits Scheme (operational from 2003-04 to 2005-06). which reduces the effective MRRT rate to 22. eligible users.5% and is intended to recognise the contribution made by the miner.0%. For the most part. claim credits for the tax component of their fuel costs on their business activity statements. which form a small part of the total. a royalty of $1.10 per tonne is payable on iron ore extracted. . Domestic sales. The royalty applicable to iron ore used in a beneficiation process is 5. since it is not levied on exports.IBISwOrLd. The Federal Government plans to impose a Mineral Resource Rent Tax (MRRT) on iron ore and coal from 1 July 2012. iron ore producers are not required to collect GST and remit it to the Federal Government. In South Australia. exemptions for small projects with resource profits of less than $50. emissions-intensive industry under the Government’s Jobs and Competitiveness Program. the industry will pay an effective carbon price on transport fuels used in mining operations. credits for state royalty payments. Key elements include a headline tax rate of 30.0% imposed on profit after a return equal to the long-term government bond rate has been achieved plus 7.0 million per year. All producers are able to claim input tax credits. allowing existing projects to use market value or book value in writing off the capital base. and a 25. do attract GST. The iron ore pellet production plant in Tasmania plans to claim assistance as a tradeexposed. before a market-based emissions trading scheme commences on 1 July 2015. set at a starting rate of $23 per tonne of carbon dioxide equivalent emitted. the immediate write off of investment made after 1 July 2012 for the purposes of the MRRT.COM.Au Iron Ore Mining in Australia August 2011 27 Operating Conditions regulation & Policy continued Resource taxes Iron ore producers are required to pay royalties based on the volume and value of mine production to the relevant state government. which became effective on 1 July 2006. while iron ore fines attract a royalty rate of about 5. The royalties charged by the WA Government vary according to the type and use of the iron ore mined. including those engaged in mining operations and associated heavy freight haulage. Under the carbon pricing arrangements.0% extraction allowance. when an effective carbon price is attached to transport fuel used in mining operations. Lump iron ore attracts a royalty of 7.www. The price of carbon permits will increase by 2. Pricing carbon The Federal Government plans to introduce a tax on greenhouse gas emissions on 1 July 2012.5% realised value (defined as either the free on-board export value or the domestic sale value less any transport costs incurred). This concession will be eroded from 1 July 2012.

47 0.0 8.92 68.9 12/19 139/499 Establishments (%) 0.988.76 171.7 468.25 157.32 151.592.3 30.13 1.992.3 6.11 5.9 69.97 -47.8 71.2 -5.722.016.6 41.5 251.9 8.65 2.2 423.5 4/19 94/499 domestic demand ($m) 169.0 7/7 173/186 Iron Ore Output (%) 11.7 4.7 -13.729 20 11.7 56.04 101.6 11.03 3.319 20 9.17 369.40 2.266.648.6 1.80 56.9 407.0 6.22 2.177.359.2 24.4 16.2 26.362.6 47.1 6.288.3 1.501.08 4/7 5/15 116/186 8/209 revenue per Employee ($’000) 1.3 6.8 7.9 23.717.7 1.8 4.8 24.24 2.41 2.0 3.95 200.028.6 495.7 4.551.725.618.40 10.3 -11.8 185.185 19 6.1 221.6 0.0 -854.4 0.397.2 2.4 2/19 24/499 Industry Value Added ($m) 5.0 -115.6 6.63 177.01 5.8 19.68 125.548.924.080.4 58.9 -12.6 0.2 28.0 0.5 10.Au Iron Ore Mining in Australia August 2011 28 Key Statistics Industry data 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Sector rank Economy rank revenue ($m) 7.7 23.9 3.551.8 14.8 9.10 92.04 4.81 99.5 18.152.1 35.824.3 9.7 39.00 62.2 4.3 1.477.3 59.41 2.30 229.387.5 1.50 56.16 95.18 332.87 92.32 n/A 3/19 17/499 Figures are inflation-adjusted 2012 dollars.000 21 12.3 0.233.96 161.2 1.IBISWORLD.COM.1 295.3 50.953.43 95.886.9 26.08 3.6 5/19 7/19 16/498 18/499 Exports (%) -4.7 9.201.2 192.614.86 132.7 N/A N/A Key ratios 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Sector rank Economy rank IVA/revenue (%) 66.6 29.80 55.83 89. Rank refers to 2012 data.2 0.885.00 57.4 153.5 64.47 173.5 7.2 280.9 263.89 1.317.91 1/19 7/499 wages/revenue (%) 9.37 400.4 0.0 0.0 12.908.8 60.461.6 2/7 57/186 Iron Ore Output (Megatonne) 198.1 8.3 1.4 60.14 94.7 4.074.028.1 50.COM.383 19 6.039.059.5 461.9 1.6 -9.3 357.4 5.32 4.068.640.9 3.646.296 19 7.5 5.789.041. 181.7 0.0 3.351.70 10.0 7.245.34 90.72 10.446.810.4 4.894 20 10.3 26.67 194.65 64.8 2.0 28.621 16.8 13.256.3 4.381 19 6.30 4.38 61.9 8.448.513.999.0 10.7 1.845.0 0.2 0.8 13.07 236.69 62.11 93.826.12 93.8 13.625.7 8.2 0.93 19/19 481/499 Employees per Est.7 324.90 56.707.5 11.6 66.9 714.903 19 5.4 66.383.5 11.7 10.358.76 7.761.6 0.5 8.7 192.26 22.91 17.86 5.3 8/15 68/209 Imports (%) 18.4 29.3 45.6 3.59 30.1 8.0 2.0 0.17 2.00 63.138.6 284.9 -604.IBISwOrLd.0 8.3 9.13 1.32 2.2 51.8 19.0 8.74 5.41 244.6 3/7 103/189 wages ($m) 710.6 21.0 -10.6 66.2 26.0 -9.580.5 8.26 3.6 37.3 37.01 1/19 4/499 Share of the Economy (%) 0.381.59 199.18 325.3 0.13 94.0 5.13 4.608.333.4 406.0 14.7 -6.265 10.4 438 470 515 550 600 650 700 7/19 18/499 Annual Change 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Sector rank Economy rank revenue (%) 7.996.0 16.1 -17.7 1.6 3/19 17/499 Establishments 27 27 27 27 27 28 28 28 28 29 29 30 30 30 31 10/19 476/499 Enterprises Employment 19 4.8 4.149.374.0 9.9 10.22 260.610.00 429.699.1 2.1 53.8 2.83 66.4 48.3 -95. SOURCE: WWW.11 371.361.5 617.1 30.00 100.09 183.39 163.64 3.8 -0.786.031.1 775.594 19 7.055.255.575.9 13/19 182/499 Industry Value Added (%) 0.7 52.968.74 1/19 10/499 Average wage ($) 144.09 10.0 0.557.90 3.0 8.714.8 10.0 3.86 169.928.80 2.111 21 12.4 388.268.34 4.4 -13.5 -16.871 21 13.48 95.6 14.796.3 3.29 5.515.725 10/19 4/19 456/498 244/499 Exports ($m) 7.66 125.7 1.474.www.329.3 37.57 274.00 55.0 3.0 0.82 341.54 3.19 3.5 35.75 3.528.4 38.677 19 9.9 -10.42 5.0 3.28 10.601.2 14.06 102.25 10.3 7.7 353.59 0.1 1.91 1.80 7/19 70/499 Imports/demand Exports/revenue (%) (%) 95.83 189.091.3 802 1.47 5.6 51.02 7.1 7/7 182/189 wages (%) 0.748.AU .3 -16.3 10.0 18.0 3.9 6/19 19/499 domestic demand (%) 538.9 44.8 441.0 21.21 3.97 5.8 -4.9 19.551.085.6 5.561.1 16.03 442.49 0.3 7/19 36/499 Enterprises Employment (%) (%) 0.0 3.4 62.105 19 9.97 370.2 -3.7 15.6 32.34 8.2 -4.2 258.2 1.3 9.8 0.034.3 52.63 10.7 4.7 0.2 13.6 38.133.8 287.4 59.7 74.696.2 384.50 57.2 14.3 23.08 1.4 2/15 3/209 Imports ($m) 162.9 0.0 0.6 6.089.

Maturity is the longest stage at 40 years with Growth and Decline at 15 years each. INduSTry rEVENuE The total sales revenue of the industry. This removes the impact of changes in the purchasing power of the dollar. High Volatility is between ±10% and ±20%. Medium is $3-$8 of wage costs to $1 of depreciation. temporary and casual employees. dOMESTIC dEMANd The use of goods and services within Australia. excluding tax and interest. Medium or Low. Level is stated as High. baked in a large furnace.0 millimetres. High is over 20%. the sum of imports and domestic production minus exports. These are mostly set-up by self employed individuals. Medium is 5-20%. partners. High is a ratio of less than $3 of wage costs for every $1 of depreciation. IBISworld Glossary BArrIErS TO ENTry Barriers to entry can be High. CAPITAL/LABOur INTENSITy An indicator of how much capital is used in production as opposed to labour. INduSTry CONCENTrATION IBISWorld bases concentration on the top four firms. leaving only the ‘real’ growth or decline in industry metrics. and rent. High means the top four players account for over 70% of revenue. Moderate Volatility is between ±3% and ±10%.IBISwOrLd. Medium is 5-35%. plus subsidies on production. are adjusted for inflation using 2011-12 as the base year. part-time. dividends and the sale of fixed tangible assets are excluded. IrON OrE PELLETS Marble-size balls of an iron ore and clay mixture. CONSTANT PrICES The dollar figures in the Key Statistics table.COM. EXPOrTS The total sales and transfers of goods produced by an industry that are exported. LIFE CyCLE All industries go through periods of Growth. . including sales (exclusive of excise and sales tax) of goods and services. Imports/Domestic Demand: Low is 0-5%.0 millimetres and 35 millimetres. wAGES The gross total wages and salaries of all employees of the establishment. Low is greater than $8 of wage costs for every $1 of depreciation.www. INduSTry VALuE AddEd The market value of goods and services produced by an industry minus the cost of goods and services used in the production process. permanent. ESTABLISHMENT The smallest type of accounting unit within an Enterprise. while Low means it is easy for a firm to enter an industry. plus all other operating income from outside the firm (such as commission income. LuMP OrE Iron ore particles in the size range of between 6. which leaves the gross product of the industry (also called its Value Added). plus capital work done by rental or lease. and Low Volatility is less than ±3%. Medium is 40 –70% of revenue. EArNINGS BEFOrE INTErEST ANd TAX (EBIT) IBISWorld uses EBIT as an indicator of a company’s profitability. NON-EMPLOyING ESTABLISHMENT Businesses with no paid employment and payroll are known as non-employing establishments. Concentration is identified as High. OPEN-CuT MINING A type of surface excavation in the form of an inverted cone. IMPOrTS The value of goods and services imported with the amount payable to non-residents. The inflation adjustments in IBISWorld’s reports are made using the Australian Bureau of Statistics’ implicit GDP price deflator. the shape of the mine opening varies with the shape of the mineral deposit. Volatility levels: Very High is greater than ±20%. Receipts from interest royalties. The most relevant measure of the number of firms in an industry. Maturity and Decline. including forecasts. usually consists of one or more locations in a state or territory of the country in which it operates. High means new companies struggle to enter an industry. leasing and hiring income). and managerial and executive employees. ENTErPrISE A division that is separately managed and keeps management accounts. Low is less than 40%.Au Iron Ore Mining in Australia August 2011 29 Jargon & Glossary Industry Jargon FINES Iron ore particles smaller than 6. repair and service income. Medium or Low. Medium or Low. VOLATILITy The level of volatility is determined by the percentage change in revenue over the past five years. and High is over 35%. INTErNATIONAL TrAdE The level is determined by: Exports/Revenue: Low is 0-5%. plus transfers to other firms of the same business. EMPLOyMENT The number of working proprietors. It is calculated as revenue minus expenses. An average life cycle lasts 70 years.

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