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Mining Australian goodwill

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Australia is one of the world's largest iron ore exporters and apparently has roughly 300 years worth of deposits that can be developed. Iron ore is a key strategic asset to Australia, in the same way that gas and oil are to the US.

In this context, one might have thought that the announcement last week by Hong Kong-based Citic Pacific and the state-owned China Metallurgical Group (CMG) that they plan to build a multibillion-dollar iron ore mine, processing plant and port in the Pilbara region of Western Australia - home to many of Australia's iron ore mines - might provide the opportunity for politicians to rail against foreign ownership of an icon industry.

So far, this hasn't happened. The news of China's move from customer to hands-on miner has been confined to matter-of-fact comment in the Australian business media.

If you are an iron ore miner in Australia, then China is your most prized customer. Companies such as BHP Billiton and Rio Tinto are making billions of dollars each year digging up iron ore and shipping it to mainland customers.

In fact, Australia supplies almost half of China's seemingly ever increasing iron ore needs. Total iron ore exports from Australia are expected to be worth US$13.7 billion this year.

But given that prices have risen by almost 10 per cent this year, on top of a whopping 90 per cent increase in 2005-06, it's perhaps not surprising that the mainland firms are thinking of cutting out the middle man and digging up the ore themselves.

Citic Pacific, which has a large steel manufacturing division, has signed a US$2 billion deal with CMG to build a mine, processing plant and port in the region where Rio Tinto and BHP Billiton do the vast bulk of the iron ore mining.

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