Head of Cliff Resources says Australia is at risk of going out of business because of the iron ore strategy being employed by Rio Tinto and BHP Billiton.
Speaking at the Global Iron Ore & Steel Forecast conference in Perth yesterday, Lourenco Goncalves said the major iron ore miners were on a path of “self-destruction” that could have wide-reaching consequences.
He said the massive ramp up in production by Rio and BHP means iron ore prices will stay low as the seaborne market is flooded with supply world demand cannot absorb.
And the ramp up by the miners is far from over. BHP plans to produce 65 million more tonnes of iron ore a year.
This would increase annual output to 275 million tonnes per annum by the 2017.
Rio Tinto is already producing about 290 million tonnes of iron ore a year and has plans to increase this to 360 mtpa by 2017.
Goncalves comments came as the price of iron ore reached a new six-year low of $US57.70 a tonne overnight.
"You pay the consequences of that.
"Let's assume that iron ore prices that are now at $US57 go to $US30, it's possible, you're going to have Australia going out of business as a country."
Goncalves said the action by the majors to try and drive high-cost Chinese producers out of business could catch the attention of the World Trade Organisation.
“Imagine if it were Russia trying to drive Japanese businesses out of business. It would not be that cool,” he said.
“In a world that’s flat, you’ve got to do to others only what someone else would do to you.”
Rio’s iron ore boss Andrew Harding slammed suggestions that it should curtail its iron ore output in an attempt to usher in a price increase describing the strategy as “economically nonsensical”.
“If we don’t supply it, somebody else will,” Harding said.
“The minute someone else supplies and I don’t, our shareholders miss out, our employees miss out, and if that supplier that chooses to fill that void is an international supplier, then the Australian and Western Australian people miss out because they don’t get the revenue-based royalties.”
This is not the first time the companies’ plans around iron ore have been questioned.
Goncalves said the Premier had every right to be worried.
“At $US58, he should be starting to climb the walls. If iron ore continues to deteriorate, the history of Australia as a country will be changed. We need to think about these consequences,” he said.
“Driving a company out of business does not make the iron ore disappear from the ground. New owners can come and develop the same orebody again.”
“Low prices will not fix the problem (of rival supply) for good, unless we are in for low prices forever.”
Goncalves confirmed Cliff's Koolyanobbing iron ore mine in WA is up for sale, with several parties interested in the asset.
Speaking at the same conference, the president of the China Metallurgical Industry Planning and Research Institute Li Xinchuang said the price of iron ore would average around $US60-$US65 a tonne over the next few years.
Li said annual production in the country had peaked at 823 million tonnes last year and would fall to 567 million tonnes by 2030.