Plunging iron ore price may have claimed another victim

The future of one of Australia's largest iron ore projects hangs in the balance after Chinese steel maker Ansteel signalled its intent to withdraw funding from the ailing Karara magnetite project, in Western Australia's north west. Gindalbie Metals shares crashed after the company told shareholders it's been unable to confirm if Ansteel had made a firm decision. Analysts say it would come as no surprise but would be a significant blow, and Independent MP Nick Xenophon is renewing calls for a senate inquiry to examine whether larger miners are intentionally causing the iron ore price to tank.
 
TIM PALMER: The future of one of Australia's largest iron ore projects has been thrown into disarray, after a Chinese steel maker signaled its intent to withdraw funding from the ailing operation.
Gindalbie Metals' shares crashed today after the company told shareholders it has been unable to confirm whether China's Ansteel is pulling funding from the giant, loss-making Karara magnetite project, which is in north-west Western Australia.
That comes as independent MP Nick Xenophon issues renewed calls for a Senate inquiry to examine allegations that large miners are intentionally forcing down the iron ore price.
Courtney Bembridge reports.

COURTNEY BEMBRIDGE: Analysts say it was just a matter of time before the plunging iron ore price claimed another victim.

GIULIANO SALA TENNA: The steel producers in China have seen their margins under pressure for some time now. So it doesn't come as any great surprise that they're reviewing all operations, including their operations here in Western Australia.

COURTNEY BEMBRIDGE: That's Giuliano Sala Tenna from Bell Potter Securities and he says, by now, it's a familiar tale.

GIULIANO SALA TENNA: A number of iron ore producers in the small-to-mid category have already exited the market and we expect to see that trend continue. We're seeing demand for finished steel products in China decline and hence the demand for iron ore's declining at a time when supply is increasing from the majors. So we expect it to be a fairly challenging year in 2016.

COURTNEY BEMBRIDGE: Gindalbie, which owns 48 per cent of the mine, says it hasn't been able to verify whether Ansteel has made a firm decision about ongoing funding for Karara.
Mr Sala Tenna says, if Ansteel withdraws, it would be the most significant collapse yet.

GIULIANO SALA TENNA: It's obviously going to be the largest one here in Australia. The other closures we've seen have all been fairly small mining operations.
Longer-term, you know, we really do think that there'll probably be four market participants left, being, you know, your BHP, Rio, Vale and Fortescue and really, everybody else will be falling by the wayside.

COURTNEY BEMBRIDGE: Up to 1,000 jobs are at risk but the impact will be much more far-reaching.

GIULIANO SALA TENNA: This will certainly be another hit to the State Government as well. And you know, it was quite a significant project that they had built up there at Karara.
So whether they put it onto care and maintenance for a period of time and see if the pricing recovers longer-term, I don't think they'd want to write off the investment in full.

COURTNEY BEMBRIDGE: It comes as independent MP Nick Xenophon renews calls for a Senate inquiry to examine the collapse in the iron ore price and investigate claims that the bigger players are dumping product onto the market to force the price down and squeeze out smaller miners.

NICK XENOPHON: We can't have our heads in the sand when it comes to the collapse in the iron ore price for the implications to the Australian economy. But also we need to find out whether the drop in the price has in part been due to a dumping of capacity in the market.
If that's the case, it has all sorts of implications. There's actually a legislative requirement to get the best possible price, the best possible deal for the people of Western Australia.
What is wrong with having an inquiry to look at one of the most significant sectors in the Australian economy, where there's been a collapse in the iron ore price from $180 per tonne just two years ago to about $40 a tonne now?
And if the allegation has any merit in terms of the dumping of capacity in the market and overproduction: if that's the case, then that is something that needs to be looked at in the context of future legislative amendments to our competition laws in this country.

TIM PALMER: Nick Xenophon ending Courtney Bembridge's report.


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