As Gina Rinehart prepares to showcase her Roy Hill mine to investors, one business analyst says the timing of the project is ‘abominable’
Roy Hill mine is now more than 76 per cent complete, with the project targeting its first shipment of iron ore in September.
The $10 billion development includes a new 55 million tonne per annum iron ore mine, 344 kilometres of railway and a new port at Port Hedland.
Next week Rinehart is taking a group of investors on a tour of the new port and rail operations at Port Hedland, but Morningstar analyst Matthew Hodge says there won’t be much joy about the project.
The price of iron ore slumped to six-year lows below $US55 a tonne last week as a result of oversupply and sluggish demand out of China.
"The timing is abominable," Hodges said.
"They're forcing supply into a market that doesn't want it."
David Lennox from Fat Prophets said while juniors in the sector were doing it tough due to the low iron ore price, Roy Hill was in the “worst position of all”.
"The mine was being developed at a time, like Fortescue, when the costs were high and they're going to come smack bang to the market in the middle of a deadly iron ore price,” Lennox said.
"If you're making a loss on every shipment of iron ore you've got to make up that drain on your cash somewhere.”
Speaking at an iron ore conference in early March, Roy Hill Holdings chief executive Barry Fitzgerald said he wished the price of iron ore was higher, but said the company had always planned to be a low-cost producer.
“I think that’s what’s really great about having been a margin-focused business all the time. Our definition of failure would be having to go through a cost reduction program, because we need to be fit for purpose from day one.”
Last week Citi iron ore and steel trading head Mark Lyons said the price of iron ore could fall as low as $US50 a tonne.
A price recovery is not expected until at least 2016 and relies on high-cost Chinese producers existing the market, which is taking longer than first anticipated.