Roy Hill Holdings, owned by Australia's richest woman Gina Rinehart, signed its first sales contract with a Chinese steelmaker to provide iron ore. Roy Hill inked in Beijing on Thursday the agreement with Shougang Group, one of the largest steel companies in China.
BHP Billiton, the world's biggest miner, believed the global supply and demand for steel, which zoomed in recent years thanks to China's huge appetite, has reached its zenith. Although demand for iron ore will continue to grow, its growth however will be much slower compared in previous years. As such, the high prices that iron ore recorded in 2011 may not likely happen again.
The signing of the deal provided assurance to financiers that will provide a $9-billion loan to the Roy Hill iron ore project amid declining iron ore prices in the global market. Industry experts said that Roy Hill needs to sign more contracts to secure over $6 billion financing project by the end of 2012.
Roy Hill's planned mine in the Pilbara region of Western Australia has a timetable to have production of iron ore by the fourth quarter of 2014. The mine is estimated to yield 55 million tonnes of iron ore yearly, although reports said that Shougang would purchase only a small portion of the total annual production.
There are, however, doubts if the mining firm majority-owned by Ms Rinehart could meet the timetable because the planned debt package to be made up loans from global banks and export credit agencies is being delayed due to talks on placing a cap on construction costs.
While Roy Hill previously estimated cost at $7 billion, there are speculations the amount would exceed $10 billion which Roy Hill is trying to pare to $9 billion.
Roy Hill has equity agreements with Posco and STX of South Korea, Marubeni of Japan and China Steel of Taiwan. The four foreign firms have as combined 30 per cent stake in the mining projects and have committed to a combined 16.5 million tonnes of iron ore purchase from the mine.
Ms Rinehart, in a message posted last week at Roy Hill's Web site, thanked its equity partners for casting their lots with the Roy Hill project even if there was economic uncertainty and the fact that Australia is one of the most expensive places to undertake mining projects compared to low-cost mining ventures in Africa, also known for its large untapped iron ore resources.
Ms Rinehart also admitted to ABC that her legal feud with her three estranged adult children also partly stood in the way of the Roy Hill project.
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