Fortescue Metal Group

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Fortescue Metal Group’s much-heralded move to triple production from the 55Mtpa of iron ore being produced and shipped in 2011 to the projected 155Mtpa by the initial goal date of mid-2014 — subsequently brought forward to mid-2013 — is full speed ahead.

Even for Fortescue (ASX: FMG), with its enviable track record of ambitious moves, the scale of the expansion is breathtaking. The Australian miner’s plans call not only for a hike in production to the tune of 100Mtpa, but a simultaneous massive investment in infrastructure, the ‘two hubs, one port’ plan.

Director Development Peter Meurs speaks of the immense task “occupying our time and imagination at the moment” with the same can-do attitude that’s come to characterise Fortescue.

“It’s always seemed manageable,” he says. “It’s a very exciting project. I guess when we announced it in November 2010 as a 100Mt expansion to 155Mt, which was expected to be funded by a combination of internal cash sources and debt funding, finishing in June 2014, it did sound monumental at that time.

After a number of industry players said ‘you could never do it that fast or for that money,’ it became more of a challenge.”

A challenge that Meurs points out has stayed on budget despite having been brought forward by 12 months from its original timeline: “We’re still on track to complete it for the same kind of money we said [in 2010]. We’re more than 50 per cent complete now and moving towards first production at some of the sites. So, it all looks doable from where we sit today.”

Infrastructure has long been the bottleneck for Fortescue. With 88,000km2 of tenements covering areas rich in resources, and new discoveries of 1.5 to 2 billion tonnes of ore per year, producing has never been the problem — getting the product to market though, is a different matter. As Fortescue point out, it exported 100Mt of iron ore in its first three years, a feat that took its competitors several decades.

One facet of the project has already reached completion. Late May saw the opening of Fortescue’s third berth at Herb Elliott Port in Port Hedland, the thriving hub of the Pilbara’s booming iron ore business and the world’s largest bulk export port. Meurs sees that milestone as one of many lined up for completion in the next 12 months.

“The third berth is the first of our expansion assets to get up and running, but we’re going to have a whole series of those happening now over the next year,” Meurs says. “The next thing that will come online is the second inloading circuit, which is our second train unloader and soon after that we’ll see the Christmas Creek 2 ore processing facility start producing. That will take us up to about 95Mt of iron ore producing capacity by the end of the year. Following that, the Solomon mine will start producing and that will ramp us up to the 155Mt by the end of June 2013.”

Indeed, the specifics of the expansion plan include several individual but intersecting projects: the port expansion, of which the third berth is only a part, constitutes “a huge project in itself,” says Meurs, “with three new berths, two new ship loaders, two new train unloaders, and stackers and reclaimers.”

The port is the terminus of Fortescue’s private rail line that stretches 280km from the Cloudbreak mine at the Chichester Hub. Opened in 2008, the line is currently being supplemented by, Meurs says, “about 120km of duplication of train line” to facilitate additional traffic. This major project is in addition to the building of the Solomon spur, a 130 kilometre offshoot track from the main rail line to the emergent Solomon hub, through what Meurs calls “quite challenging country — the Chichester Ranges.”

“So in all there’s 250km of rail ­—that’s a very significant project; not to mention buying 18 locos, thousands of ore wagons, and all the other things that go with the rail expansion.”

“Then of course, the other major part is building the mines,” Meurs continues. “There’s a brand new ore processing facility being built at Christmas Creek, part of the Chichester Hub. It’s a bit bigger than the one we built previously, and has a whole new mining fleet associated with it including a new mining contractor.”

“At Solomon, which really is the flagship of this expansion project, a 60Mt greenfield site is being transformed into a mine. The setting in the hills is spectacular; in fact this may be one of the most beautiful mines in the world. With two ore processing facilities, nearly 15km of conveyors, it’s just a very exciting project. It has a new train loop and train loading, crushing hub… Every dimension at Solomon is just massive and it’s all now about 50 per cent complete.”

Indeed the Solomon hub is a world unto itself — with more than three billion tonnes discovered, the new hub is forecast to generate more than the current annual output of Christmas Creek (18Mtpa) and the flagship Cloudbreak mine (40Mtpa) combined, making it the largest iron ore start-up in Australia.

Even Solomon does not mark the high water level: the Maiden Resource Estimate declared for the embryonic Western Hub — a component of Fortescue’s next planned expansion — at 625Mt was extraordinary.

“We’ve continued to explore west of Solomon and found new ore bodies there. Solomon resource itself expanded from its initial discovery to be billions of tonnes of ore. Of course we’re continuing to grow the Chichesters, and then right near the Chichesters, after we announced this project, we discovered the magnificent Nyidinghu facility; that’s another two billion tonnes of iron ore 40km away from the Cloudbreak mine,” says Meurs.

Nyidinghu is slated to be part of the next expansion, beyond the current project: “At the moment we are all focused on this current 100Mt expansion,” says Meurs.

“As it is tripling the size of the company, it’s absorbing most of us, but we’ve got a number of options for the project that will follow this one, and one of those, one of the very good prospects is Nyidinghu.”

For all the herculean nature of the various projects, Meurs insists that “the infrastructure is only one part of the story. It’s also about mobilising, training and implementing our mining teams. It’s about marketing the new products and shoring up our customers. It’s about changing our whole operation from one mine, one rail, one port to multiple mines and a much more complicated operation. In all of that I see Fortescue getting on with it, with a deep commitment to its fundamental values of working together, treating each other like friends and family and working closely with our contractors and suppliers. It’s exciting to work in a company that is so integrated and so focussed on achieving great results and enjoying the journey doing it together.”

“This is a very exciting project in terms of building new infrastructure and new mines and everything else, but for Fortescue there’s a lot more to it than that,” concludes Meurs.

In true Fortescue fashion, Meurs looks towards the horizon: “This is a company-making project if ever there was one. When you’ve got a $15 billion market cap and you’re spending $10 billion [on an expansion] that’s a pretty big challenge. When you’re producing 55Mt and you’re adding 100Mts of capacity — that’s a pretty big challenge. We’re going from being a major player in iron ore to being a major international mining house in one year.”

Is the sky the limit for Fortescue? “That’s why we’re here, we all see the potential of this great company.”

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