Australian mining companies not fazed on iron ore price - iMINCO Mining Training Information

Australian mining companies not fazed on iron ore price

iMINCO Australian mining companies not phased on iron ore priceAustralian mining companies are becoming resilient when the price of iron price fluctuates.

Heavy investments in new technology to increase mining efficiency have allowed mining companies like Rio Tinto and BHP to create a ‘safe’ buffer and in doing so are protecting mining jobs in the process.

Iron ore exports from Australia have been increasing over the past few months. West Australian, South Australian and Northern Territory mining companies are now churning out hundreds of thousands of tonnes of iron ore.

Iron ore price kick-starts mining investment

When the rapidly falling iron ore prices hit in 2012-2013, mining companies had to seriously rethink their operational cost structure and in doing so, took out the knife and started slashing costs where it could.

As a result of extreme cost cutting and investment in technology, some of the big miners like Rio Tinto, BHP and Fortescue came out the other end of the iron ore price drop crunch with highly efficient and profitable mining operations.

“mining operations could be sustained, no matter how low the price of iron ore”

Competing in a global market, this new outlook on a lean and trimmed workforce, coupled with technology driving productivity – Australian mining companies saw a new future emerging. A future where mining operations could be sustained, no matter how low the price of iron ore fell.

Australian mining companies chasing profitability

However, in terms of profitability, when the price of iron ore drops, the profits for the mining companies also dips. Maintaining a profitable mining operation is the key to future investment and longevity of mining jobs.

RioTintoandBHPBilliton reported that aone dollara tonne change in the iron ore price alters their profits by $US120 million ($A133.1 million).

“strong returns on capital invested”

BHPearned $US7.8 billion in the December half, and Rio earned $US10.2 billion in the year to December 2013. Both these high-performing mining companies can benefit from strong returns on capital invested in theirPilbaramining operations after this week’s plunge from $US114.20 a tonne to $US104.70 a tonne.

Given the reported cash costs of mining iron ore, which is around $45 a tonne (avg) if the price keeps dropping, miners like BHP and Rio Tinto would stay in the profit zone.

With the declining price of iron ore and subdued demand from China, some of Australia’s higher cost iron ore mining companies start to feel the pinch.

Fortescue Metals Group makes mining efficient

Back in 2012, Fortescuewas loaded to the hilt in borrowings and was a high cost miner compared to its competitors. Debt was climbing, investors were chasing profits and things were looking grim when the iron ore price fell from $US130 a tonne in June 2012 to a low $US86 in September.

With the iron ore price per tonne sitting at under $US100 a tonne, Fortescue was unprofitable and changes had to be made.

“absolute strength and conviction”

Since those volatile days, Australia’s third biggest iron ore miner Fortescue is well placed to deflect any future iron ore price dives. In a show of absolute strength and conviction, Fortescue’s man at the helm, Andrew ‘Twiggy’ Forrest and his highly skilled management team have created ‘change’ in the organisation.

Production has increased, the cash cost of mining per tonne has dropped and debt has been paid down.

It was reported that Fortescue’s cost per tonne to mine the ore is $US83 a tonne in 2014.

“Fortescuehas a bit of room to breathe as the price of iron ore declines”

In 2013, Fortescue Metals’ Group break-even price was about $US103 a tonne and if things go to plan, their break-even price will be somewhere in the region of $US73 a tonne in 2015.

Compared to Rio andBHP, their cash costs per tonne are still high, although it means thatFortescuehas a bit of room to breathe as the price of iron ore declines.

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