Although it is winter in the southern hemisphere in August, the daytime temperature in the mining areas of the Pilbara region in Western Australia still exceeds 30 degrees Celsius.
It takes two hours to fly north from Perth, the capital of Western Australia, to reach the mining area in the region. From the plane, the entire mining area is covered in reddish brown, with occasional scattered vegetation.
This is the world's largest iron ore production area, with a total area of 500000 square kilometers. The iron ore reserves account for about 28% of the world's total, including 70% high-grade hematite with an iron content of over 60%.
Over the past 20 years, with the explosive growth of China's steel industry, a large amount of high-quality iron ore has been transported across the sea to China, which has also led to the growth of two major mining giants.
I have been with Rio Tinto for 25 years. At the beginning of 2000, our iron ore production was around 70 million tons per year, but now that number has grown to over 330 million tons, "recalled Simon Trott, CEO of Rio Tinto's iron ore business, the world's largest iron ore producer." Over the years, our assets and those of our competitors in the Pilbara region have been growing, which may be the largest industrial asset expansion I have seen in the past few hundred years
Along with the increase in demand for ore is the price. In recent years, Chinese steel mills, which were originally buyers and users of ore, also hope to obtain stable raw material supply by mastering more mining resources, while sharing the dividends brought by the rise in ore prices. The Pilbara region is also their first choice for investment.
However, mining is not that profitable. From the discovery of mines to exploration, construction, and operation, it often takes several decades, which is not only a long cycle, but also a huge cost. It requires comprehensive planning and precise cost estimation in the early stage, and may also face uncertain risks brought by community residents from different cultures and local environmental policies.
How to avoid investment losses as much as possible? How can overseas mining development be more efficient? The First Financial News reporter recently visited the Xipo mining area located in the Pilbara region and found some answers from this Sino Australian joint venture iron ore project.
Sample of Investment in Xipo Mine
The Xipo project is a joint venture between Rio Tinto Group (holding 54% of the shares) and China Baowu Iron and Steel Group (holding 46% of the shares) in the Pilbara region of Western Australia. The project will be officially launched in March 2023, with a planned annual production capacity of 25 million tons and an investment of approximately 2 billion US dollars.
At present, this project is still in the comprehensive construction stage. At the construction site located in the Xipo mining area, the reporter saw that a 24 meter high primary crusher had already taken shape, and pink ore trucks with tires taller than a person were shuttling through the mining area, transporting the ore initially mined from the Xipo mine in the western mountain range to the crushing area for crushing.
These machines and equipment are all necessary investments for building a mining area. After primary crushing, the ore will be transported by conveyor belt to the Palabudu ore processing plant. In the Xipo mining area, the length of the conveyor belt to be constructed alone is 18 kilometers.
The Xipo mining area is adjacent to several mature mining areas that Rio Tinto has been mining, including the Dongpo project, which has been jointly developed with China Baowu for many years, so it can share some infrastructure. If we want to build a brand new mining area, the investment is far from limited to these, and we also need to construct ports and terminals for transporting ore overseas, as well as railway lines connecting the mining area and the terminals.
Rio Tinto has invested in the construction of two ports in the northwest of Pilbara, namely Dampier Port and Lambert Point Port. 51 years ago, its first export of iron ore to China was loaded onto ships from the port of Dampier. Nowadays, the annual ore transportation volume of Dampier Port has reached 139 million tons, and an average of one ship can be loaded in 24 hours, with three ships loaded per day; The annual transportation volume of Lambert Point Port reaches 189 million tons, and it can load 4 ships per day.
The ore is transported by automatic train from the mining area to Dampier Port. Perhaps few people know that Rio Tinto is not only the world's largest ore producer, but also the world's largest private heavy-duty railway system operator. The railway network connecting various mining areas and ports in Pilbara has reached 1900 kilometers, with about 66 trains loaded with ore transported to ports every day and then loaded onto ships for overseas shipments.
Several industry insiders have pointed out to reporters that investing in overseas mines requires careful consideration of infrastructure costs. For example, in 2006, CITIC Pacific spent 415 million US dollars to purchase Australian magnetite, but there is no supporting infrastructure around the mining area, requiring the construction of dedicated roads, pipelines, ports, docks, and power plants. Due to this being CITIC Taifu's first overseas mining investment, the lack of experience not only delayed the production time by four years, but also resulted in development costs exceeding the budget by five times.
And more implicit cost expenditures may be unimaginable before investing in overseas mining. Due to the fact that most of the residents in the Pilbara region are Indigenous Australians, while constructing mining areas, it is also necessary to build supporting supermarkets, post offices, pharmacies, primary schools, and medical service facilities for the communities where the mining operations are located. It is also necessary to ensure that the Indigenous cultural heritage around the mining operations is not damaged.
Mining is necessary, but not always popular, so we need to ensure social recognition and ensure that the mining methods are in line with the needs of local residents and communities, "Jod told reporters." In the past few years, our mining methods in Western Australia have undergone significant changes, and we need to pay more attention to the protection of local cultural heritage
For example, the transportation road and conveyor belt under construction in the Xipo mining area need to pass through three cultural crossings (i.e. indigenous cultural sites). Therefore, the engineering team specially built a bridge structured conveyor belt to avoid damage to the cultural sites.
In addition, transportation expenses for mining employees are also a significant expense. In Western Australia, mining employees usually work in the mining area for about a week before flying back to their homes in cities about two hours away for rest. For example, Rio Tinto has about 18000 full-time employees and temporary contractors in Western Australia, of which about 10700 people work in mining areas by plane. There are about 170 flights per week transporting these employees to and from 15 airports. 32% of the employees live in Western Australia and 60% live in Perth.
Autonomous driving is gradually becoming a standard feature
In the mining areas of Western Australia, manpower is not only a significant expense, but also a possible source of unsafe incidents. Therefore, the automation of transportation vehicles is much faster than in other countries and industries.
In the Xipo mining area, the reporter saw a pink mining truck carrying ore at a constant speed of 60 miles per hour to the crushing area, and there was no driver in the truck. By next year's production, 28 unmanned mining trucks will be put into use, responsible for all ore transportation in the Xipo mining area.
Once upon a time, being a truck driver in the mining areas of Western Australia was a high paying profession. Nowadays, in the Pilbara mining area, 80% of the transport truck fleet has achieved autonomous driving. These mining cars use pre-set GPS routes to automatically navigate transportation roads and intersections, with the control panel located at the operations center in Perth, 1500 kilometers away.
Rio Tinto has been piloting autonomous mining trucks since 2007, with partners including two construction machinery manufacturers, Komatsu and Caterpillar. These automatic mining trucks are 9 meters high and can load 240 tons of iron ore at once.
Nowadays, autonomous driving systems have expanded to include automatic drilling rigs and trains. The automatic drilling system allows more people to return to the city for work from the mining area. They remotely monitor multiple drilling machines from different manufacturers in multiple mining areas through a console at the Perth Airport operations center, as well as more than 60 trains traveling between the mining area and the port every day.
We have been operating an automated train system since 2018, and the previous testing and certification took ten years with a capital investment of $1 billion, "a relevant person from Rio Tinto's railway department told reporters. Before 2018, the company had 500 train drivers, and due to the need for drivers to change shifts midway, the trains stopped 3-4 times, taking more than an hour. After using unmanned trains, not only did we save a lot of driver shift time, but we also saved nearly 1.5 million kilometers of road mileage per year and improved the reliability of operations.
In 2018, when the fully automated train system was first put into use, 13% of train operation time still required manual intervention. However, in the first half of 2023, this proportion decreased to 2%, and full automation has been basically achieved.
Whether in the Xipo mining area or the port terminal, there are fewer and fewer on-site workers that can be seen nowadays. Four dedicated loading docks are managed by a unified port system, and ore is transported from trains to ships by conveyor belts. The "brain" that operates and monitors the normal operation of these systems is located in the operations center near Perth Airport.
Officials from Rio Tinto's operations center told reporters that in recent years, many employees who work in mining areas have moved here to work. One operator can monitor multiple mines through a computer, or train transportation, or port loading. The use of automation systems firstly improves safety factors and can also reduce costs. Currently, the company is still experimenting with unmanned sprinkler trucks and has established an artificial intelligence team to study how to make decisions through artificial intelligence to make mining production more efficient.
The transformation of the role of Chinese capital under the win-win situation
More use of auto drive system is an important way to reduce costs and increase efficiency in mine development, especially in the current situation of rising industry costs.
Jod pointed out that global inflation has been severe in the past few years, which is also reflected in the cost curve. In all the regions where we operate, costs are rising, and this is more significant than five to ten years ago
According to Rio Tinto's 2023 financial report, the company's unit cash cost for iron ore in the Pilbara region in 2023 is $21.5/ton. In 2024, due to rising labor and component costs, the unit cash cost increased to $23.2/ton in the first half of the year. It is expected that the unit cash cost for the entire 2024 period will be between $21.75-23.50/ton.
However, compared to the price of iron ore sold to downstream steel mills, the current mining costs can still generate substantial profits. Although the import price of iron ore has declined since the beginning of this year, it still remains around $100/ton.
As the world's largest steel producer, Chinese steel mills are the main purchasers of iron ore from Western Australia. As of July this year, Rio Tinto alone has shipped 4 billion tons of iron ore to China, producing enough steel to build 23000 bird's nests (national sports facilities).
Nowadays, more and more Chinese steel mills are transforming their roles from ore purchasers to mine investors.
The Xipo project is a joint venture between Rio Tinto and China Baowu, with the goal of producing 275 million tons of iron ore within the joint venture period. China Baowu will also purchase a total of approximately 126 million tons of iron ore from Rio Tinto based on its equity ratio in the Xipo iron ore project, which is approximately 11.5 million tons per year.
Prior to the Xipo project, China Baowu had already partnered with Rio Tinto to develop the Dongpo mine project in the Pilbara region, with an expected production limit of 200 million tons.
In addition, China Baowu is also jointly developing another Ashburton project in Western Australia with Australian Mineral Resources Limited, South Korean Pohang Steel Company, and American Metal Coal Company, involving a production capacity of 30 million tons. The first batch of ore has been sent from the local port to Baosteel's Zhanjiang base.
Qiao De revealed to reporters that Rio Tinto is also jointly developing the Simandou iron mine in Guinea with Chinese partners including Chinalco and China Baowu, and jointly building infrastructure such as railways and ports for transporting iron ore. The average grade of ore here is over 65%, making it one of the most abundant mines in terms of reserves. It will also become an important global iron ore producing area, like Pilbara and Brazil.
More Chinese companies are also sharing the dividends of overseas mines such as Western Australia through component supply.
Qiao De told reporters that China Baowu is one of the important suppliers of railway components in the Pilbara region. "Our cooperation with Chinese partners is no longer just about business customer relationships, but now more about win-win cooperation and bringing new development opportunities to each other. In the past year, Rio Tinto's procurement amount in China reached 3.4 billion US dollars, of which Perth's iron ore business procurement amount reached 1.7 billion US dollars. In the entire Pilbara region, including Xipo, we can see many equipment from China, such as Wuxi Baotong, which is a major conveyor belt supplier
In the upcoming Ximangdu mining project, XCMG Group has recently won the bid for a complete set of core mining equipment, including dozens of 230 ton mining trucks, 350 horsepower and 550 horsepower large mining graders, with a total contract amount of nearly 800 million yuan.