Friday 22nd Jan, 2021

BHP gets an edge over Rio in Pilbara iron ore

BHP iron ore train. Photo: BHP Billiton
BHP iron ore train. Photo: BHP Billiton

Trimmed-down mining giant BHP Billiton has edged ahead of its major competitor in Western Australian iron ore production, reportedly cutting its breakeven production rate by roughly $US2 a tonne.

According to a Fairfax report, market analyst UBS believes BHP has reduced its breakeven iron ore production rate to US$28 a tonne.

Formerly the ASX- and London-listed miner was believed to be producing at the same rate as its major competitor, Rio Tinto, at US$30 a tonne.

Analyst Glyn Lawcock, quoted by Fairfax, said BHP had earned its edge thanks to the location of its mines.

“The tyranny of distance is … a headwind for Rio,” Lawcock reportedly said. “Their mines are further from the coast than BHP and their mines will get further away from the port, and that will put pressure on their costs.”

Rio’s distance issue won’t go away over the long-term, either, Lawcock noted.

“Rio’s mines tend to be smaller-scale and smaller-life than BHP’s, which has said it doesn’t need to open a new mine for eight years, or a new mining hub for 20 years,” he was quoted as saying.

Despite BHP edging ahead to US$28 a tonne breakeven – the point at which it is not making any profit, or any loss, when it sells iron ore – Rio is still sitting pretty ahead of everyone else at its US$30 a tonne breakeven.

The only other major iron ore producer in the region, Fortescue Metals Group, is believed to have a breakeven of US$42 a tonne.

Gina Rinehart’s Roy Hill mine, rail and port project, set to ship first ore later this year, is predicted to have a breakeven of around US$39.

And the biggest international producer of iron ore, Brazil’s Vale Group, also has a breakeven of US$39 a tonne, according to UBS figures.

While the big two Pilbara miners are still making a hefty profit on iron ore – 62% Fe standard was up to $56 a tonne overnight – Rio is also thought to have suffered from a recent $5 a tonne decline in the premium price paid for iron ore in lump form. Rio produces more lump iron ore than BHP, so it may have suffered more than its rival in that regard.