FACTS’N’FIGURES — Iron ore sector remains hot

Australia and Brazil are expected to remain the dominant exporters of iron ore, according to a report conducted by Sydney, Australia-based AME Mineral Economics.

The study estimates operating costs for 67 mining operations around the world, accounting for 87% of output from the Western World. The projections are based on transport, beneficiation, labor and mining costs.

n Transport — Ocean freight rates were extremely low in 1996, less than 50% of the peak seen in early 1995. Lower rates make it easier for Brazilian producers to market in Japan and Asia, where, normally, they have a disadvantage relative to Australian iron ore producers. Similarly, low ocean freight rates make it easier for Australian producers to market in Europe, where Brazilian producers have an advantage.

Ocean freight rates, however, are expected to rise in 1997.

Inland transport also has a major impact on the cost competitiveness of an operation. Inland transport is, on average, the largest component of free-on-board (FOB) costs.

The costs of inland transport vary according to whether the transport mode is owned and controlled by the mine operator. For example, the three major Australian iron ore mines in the Pilbara region have an advantage in that they own and operate railways that are used solely for transporting iron ore.

On the other hand, Brazilian iron ore miners in the Iron Quadrangle have had to rely on state rail systems to move their product to port. These producers should see some improvement in transport cost and performance as a result of their participation in the privatization of the rail network in southeastern Brazil.

* Beneficiation — Crushing and screening constitute the next-largest cost category, followed by mining and royalties. Productivity improvements are expected to be realized in terms of both mining and beneficiation. Power costs are a significant factor in determining the pelletizing cost and, to a lesser extent, the cost of crushing, grinding and other concentration processes.

* Labor — The rate of inflation in a country can erode a mine’s competitive position if it is out of kilter with the rate in competitor countries. South African mines, for example, have benefited from a substantial devaluation of their currency, while, at the same time, their competitors in Australia and Brazil experienced an appreciation of theirs. However, the favorable impact of this development in South Africa has been offset by substantial increases in wages at mines in that country.

* Mining — The quality of run-of-mine ore and shipped products has a major influence on a mine’s ability to compete. Brazilian mines have an advantage over their Australian counterparts in that run-of-mine ore in the South American country has a higher iron content, as well as lower levels of alumina.

Mining costs are affected by the waste-to-ore ratio, the distance over which ore is carried to the crusher, and the distance over which the waste is transported. More important, in terms of FOB costs, is the amount of product that is gained from each tonne of run-of-mine ore.

Even though some of the high-quality hematite resources in Brazil’s Iron Quadrangle and Australia’s Pilbara region are being depleted, those countries are expected to continue to dominate the supply of iron ore to the seaborne trade. This dominance is based on easily mined reserves, low mining costs and relatively cheap beneficiation costs.

The Brazilian operations enjoy low waste-to-ore ratios, as well as low beneficiation costs. Conversely, Australian operations have a less favorable waste-to-ore ratio, but they do benefit from a high product-to-ore ratio and low inland transportation costs.

— From “Iron Ore 1997: Divergent Forces,’ a publication of Sydney-based AME Mineral Economics.