A $468 million boost for Rio Tinto’s Pilbara blend

Rio Tinto has declared its $468 million Silvergrass iron ore mine in Western Australia open, with a ceremony at the site attended by company chief executive Jean-Sebastien Jacques and Western Australian premier Mark McGowan.

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Mr Jacques said the new iron ore mine, which will add a further 10 million tonnes to Rio’s annual production capacity, was “a further demonstration of our long-standing commitment to the Pilbara region in Western Australia”.

Rio Tinto, which recently reported underlying earnings for the half year of a massive $4.95 billion, says the mine will produce “high quality, low-phosphorous Marra Mamba ore” which is critical to the giant miner’s Pilbara blend product.

The mine is in Western Australia’s vast Pilbara region, about 70 kilometres north-west of Tom Price. Rio Tinto has described Silvergrass as a satellite deposit, which is adjacent to the company’s Nammuldi mine.

“Silvergrass is a great example of our value-over-volume approach in action as the mine will deliver the high-quality, low-cost ore used to maintain the world-class premium Pilbara Blend product our customers love so much,” Mr Jacques said.

The company highlighted the vast economic spin-offs as it declared the mine open, saying more than 500 jobs were created during construction of the mine, while contracts worth more than $180 million were awarded during construction.

Mr McGowan, who led the formalities at the mine said: “Western Australia’s leading iron ore sector produced 38 per cent of the world’s iron ore last year, and plays a vital ongoing role in the State’s economy through jobs and royalties. The Silvergrass mine is the latest in a series of new mine developments by a number of major companies, which show that confidence in the State’s sector remains high.”

Mr McGowan also thanked Rio for its contribution to local employment.

Rio Tinto iron ore chief executive Chris Salisbury said the mine was delivering significant value to WA “with design, construction and commissioning all undertaken by WA companies”.

Also on Wednesday Rio Tinto responded to questions about recent developments in Indonesia concerning the huge Grasberg gold and copper mine. Rio Tinto has been a partner in the mine with US mining company Freeport McMoRan since the mid-1990s.

The Indonesian government announced on Tuesday that Freeport had agreed to give up its majority stake in the mine, in the Indonesian province of Papua, after tough negotiations over its future.

Rio Tinto does not own the mine, and according to a resource analyst at Morningstar, Mathew Hodge, had a “complex arrangement” with Freeport where it only got a share of production from the mine above a certain level.

Asked about the Freeport issue on Wednesday, Mr Jacques said “there is no doubt that Grasberg as a mine, as a resource, is a world class resource. But there is a fundamental difference between having a world class resource and a world class business. Depending on the outcome of the negotiation, then we will decide – do we want to stay or do we want to go.”

In a statement sent to Fairfax Media on the Grasberg mine, Rio said: “We have been in contact with FCX (Freeport) regarding the “framework” announced yesterday. At this stage there are limited details on the framework as this needs to be agreed between FCX (Freeport) and GoI (Government of Indonesia).

“We want to see progress in the negotiations between GoI (Government of Indonesia) and FCX/PTFI (PT Freeport Indonesia) and a value-preserving resolution to the operational and long-term contract sanctity issues would be welcome.”

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