AN (UN)REFINED STRATEGY
Surging demand from Chinese alumina refineries is helping push the price of the bauxite back up – for now, anyway – ahead of the country’s aggressive winter shutdown policy. Yet the long term fundamentals are very promising, and Rio Tinto’s Amrun developm
“The projected growth rate, mostly driven by seaborne bauxite traded into the China market, is outpacing that of aluminium.” A national project
IN August, Chinese bauxite and alumina imports increased 46 per cent and 123 per cent respectively.
By late October the alumina price, based on Metal Bulletin’s FOB Australia index, had climbed 53 percent to $469.74 a tonne in two months; its highest level since the index was launched in 2010.
In an October note, Wood Mackenzie senior analyst Ami Shivkar stated that there was still steam left in the price rally ahead of the mandated winter refining shutdown.
“All the Chinese refineries don’t have the amount of bauxite they want and smelters are still stockpiling.”
Long term forecasts are also positive. In August, Rio Tinto predicted that imports would play an increasingly important role for China, which continued to add refining capacity while grappling with declines in domestic bauxite quality.
Australia is the world’s largest producer of bauxite, accounting for about one-third of global output in 2016-17.
Domestic production is expected to reach 83.4 million tonnes in 2016-17, up from 72.9 million tonnes in 2011-12 according to IbisWorld.
North QLD has some of Earth’s largest known bauxite deposits, and the region is home to a number of advanced, world class projects as companies look to take advantage of healthy demand.
Leading the charge is Rio Tinto’s Amrun project, which is scheduled for completion in 2019.
Announcing the development decision in November 2015, former Rio chief executive Sam Walsh called Amrun one of the highest quality bauxite projects in the world.
“This long-life, low-cost, expandable asset offers a wide variety of development options and pathways over the coming decades,” he said.
“We are establishing Cape York bauxite as the product of choice for the Chinese seaborne market with consistent quality, security of supply and strong technical marketing support.
“Amrun will be significant in helping to meet growing bauxite demand from China.”
This forecast is proving correct. With revived plans to reduce exposure to downstream aluminium processing through the sale of its ‘Project Lego’ assets, Rio is seeing bauxite exports as its most value-generative proposition.
“Prospects for bauxite – a sector where Rio Tinto maintains a very strong competitive position – are positive,” Rio’s 2016 Strategic Report stated.
“The projected growth rate, mostly driven by seaborne bauxite traded into the China market, is outpacing that of aluminium.
“This is due to both a desire by China to be self-sufficient in alumina, and the continuing depletion and reduction in quality of China’s bauxite resource position.”
The $2.6 billion Amrun project involves construction of a bauxite mine and associated processing and port facilities about 40km south of the Embley River near Boyd Point on Cape York Peninsula.
Once operational, Amrun will replace production from the existing East Weipa mine and increase overall annual exports by about 10mtpa. Planned initial output is 22.8 million tonnes per year, but there are options for future expansions up to 50mtpa.
By March 2017 Rio had awarded more than $900 million in contracts to 509 QLD suppliers; and almost two thirds of the $1.38bn in contracts were awarded to Australian suppliers.
Third quarter results saw the project on schedule for first shipment in H1 2019, according to the company.
“The Amrun project is advancing to plan with key construction activities continuing, including installation of the first three wharf modules and fabrication and transportation to site of the process plant beneficiation modules,” the company stated in its Q3 report. By November, Amrun had created 470 jobs across Australia, Rio announced.
In 2016, WA supplier Civmec was awarded the $160m contract to construct a processing facility; including a beneficiation plant and associated water, electrical and lighting systems.
The fabrication, pre-cast manufacture and assembly work for this facility has taken place at Civmec’s Perth-based Henderson facility, where about 350 employees including subcontractors are working on fabrication and another 120 on module assembly.
In October, a heavy load vessel transported three beneficiation modules and a transfer tower into the Port of Weipa.
These modules each weigh more than 1200 tonnes with dimensions of up to 16 metres wide, 25 metres long and 30 metres high.
The remaining three modules were due to arrive this month.
The beneficiation modules will form the central facility of the plant, where bauxite from the Amrun mine will be washed and screened onsite before being shipped to customers.
The fabrication of key components were also made with 95 per cent Australian steel.
Rio Tinto Amrun project director Marcia Hanrahan said fabrication of these components had showcased best practice Australian manufacturing using 4000 tonnes of Australian steel.
“Construction of the processing facility has created hundreds of jobs in WA, in addition to our current Amrun workforce of around 1200 in QLD,” she said.
Businesses bidding for contracts over $1m completed a Local and Indigenous Participation Plan as part of the procurement process.
“Almost 80 per cent of the Amrun workforce are Queenslanders including 176 indigenous employees of which 43 are local Aboriginal people,” Ms Hanrahan said.
“We are proud of the supplier and employment opportunities we have created for Australians and there will be more to come.”