The Boom: Iron ore and Australia

Iron ore is now Australia’s biggest export. AFP/CHRISTIAN SPROGOE RIO TINTO

Australia’s economic future lies underneath our feet. The island continent is blessed with a variety of natural resources but none as plentiful or important as iron ore.

Iron is a common element in soils and rocks – but finding it in high concentrations and the right minerals worth mining takes a bit more effort. Australia has been endowed with giant iron ore mineral resources and we keep finding more.

In 2010, iron ore overtook coal as Australia’s most valuable export – $47.2 billion worth left our shores (coal was $43 billion). Given the debate about the carbon tax and climate change, can iron ore replace the money we currently earn from exporting carbon emissions - in coal form - to the world?

The answer is undoubtedly yes.

What is iron ore?

Iron is found in three major types of iron-bearing minerals – hematite, goethite and magnetite. In general, steel mills love hematite and goethite ores since they contain high grade iron (more than 50% iron), while magnetite ores have lower grades and require more processing to produce a saleable iron ore pellet for the steel mills. Historically, the vast majority of Australia’s iron ore production has been from hematite or goethite-type ores, with only minor magnetite production.

Given the insatiable demand for raw materials in Asia, especially in China, Australia’s iron ore exports have quadrupled since 1990 and reached 400 million tonnes (Mt) in 2010. The big three miners are Rio Tinto, BHP Billiton and more recently Fortescue Metals Group, with many other smaller players. If one examined all current iron ore projects under consideration or active developments, it is easy to see why the industry boasts of reaching a billion tonnes of exports per year by 2020.

The obvious question then arises as to how long this boom or so-called super-cycle’ can last.

How much ore do we have?

The Australian mining industry reports annually on the mineral resources they control – so it’s easy to check just how much we have.

For example, 2010 resources in the Pilbara alone include Rio Tinto’s resources of 15,500 Mt grading 60.3% iron, BHP Billiton’s resources of 14,300 Mt grading 59.6% iron, and Fortescue Metals resources of 8,160 Mt grading 49.5% iron – or some 38,000 Mt for just the three big players alone.

A raft of mid-sized and junior companies also report iron ore resources in the Pilbara – as well as moderate size iron ore mines in South Australia, Tasmania and the Northern Territory. There are also prospects for iron ore mines in Queensland and New South Wales (some speculative but others quite real), although poor old Victoria misses out

According to Geoscience Australia, in December 2009 there was 28,000 Mt of economic iron ore resources and a further 35,700 Mt of sub-economic and marginal resources.

If you look at Western Australia’s resource data, the Department of Mines and Petroleum’s ‘MINEDEX’ system reckons that there is some 66,900 Mt of iron ore resources in WA alone – ignoring the rest of the nation which also hosts various modest deposits. If one remembers their history lessons, in 1938 Australia supposedly considered itself so short of iron ore that it banned exports – a policy which remained until 1961. The trend since this time is beyond the wildest dreams of the miners – from a minimal resource base to being a powerhouse of iron ore globally.

Let’s do some basic maths. Assuming the industry reaches a billion tonnes by the end of this decade, and then the production stays constant – by 2050 the cumulative production would be 28,000 Mt. Alternatively, let’s assume that the production grows at this same rate – by 2050 the annual production would be 3,000 Mt and the cumulative production would be 68,000 Mt.

Given the ongoing exploration, discovery and increase in reported economic iron ore resources – we clearly do not need to be worried about the “amount left”, since there is plenty for several decades at least. Worry about peak oil absolutely – but certainly not peak iron ore.

The cost of becoming rich

Every bit of iron ore used to produce a tonne of steel gives rise to an average of about two tonnes of greenhouse gas (GHG) emissions – partly due to mining and transport, but mostly due to the smelting/refining with coking coal.

Steel mills that use electric arc furnaces use a high proportion of recycled steel, and this can considerably reduce the emissions intensity. The use of biomass to replace coking coal also decreases the emissions intensity of steel. Furthermore, the Pilbara is now a network of railways, mega-mines and exploration leases – with some even going through the centre of national parks (eg. Karajini).

In sustainability reports, you can see the gradual increase in water and energy consumption and GHG emissions per tonne of iron ore railed to the ports. The amount of water discharged each year to the environment from mines is also increasing substantially – largely due to mines getting bigger and deeper and having more water to manage (some big wet seasons don’t help either; try asking a water manager in the Pilbara about Weeli Wolli Creek too and watch the painful reaction).

If you look at developing magnetite resources instead, then increase this environmental intensity even further – more energy, more water, more emissions, and more mine wastes.

On the social front, there is mixed success – while some indigenous groups are signing multi-billion dollar deals (eg. Yamatji Marlpa’s recent deal with Rio Tinto), the “Yindjibarndi versus Fortescue” case has seen incendiary claims about poor negotiations and lack of respect for indigenous communities and their aspirations.

The Saudi oil minister, Sheik Ahmed Zaki Yamani, famously said in the 1970’s that “the Stone Age didn’t end for lack of stone” – and Australia’s iron ore sector is not about to run out of the good stuff any time soon.

Clearly, the big issues remain the environmental and social costs of “quarry Australia” – just imagine, even if only for a minute, what the Pilbara could look like in 2050 and beyond.

If only we could have such brave planning linking mineral resources, conservation, water, pollution or indigenous community development on decadal scales beyond election and corporate cycles. Now that would be awe-inspiring.