Fortescue is going ahead with a new $1.7 billion iron ore mine

Jie Zhao/Corbis via Getty ImagesIron ore in China.

Fortescue Metals has finally approved the development of the Eliwana mine and rail project in Western Australia’s Pilbara region at a cost of $US1.275 billion ($1.69 billion).

The project, which will create up to 1900 jobs during construction and 500 full time site positions when operational, extends Fortescue’s Pilbara footprint, the biggest of Australia’s iron ore miners, and will lift the quality of overall output.

China, the biggest market for Australian iron ore, Australia’s largest export, is increasingly demanding higher quality iron ore for its steel industry.

In early trade today, Fortescue shares were down 1.6% to $4.465.

Fortescue assumed a price of $US42 a tonne for iron ore for the project. The federal budget announced last month assumes a price of $US55.

CEO Elizabeth Gaines says the development will maintain Fortescue’s low cost status and give greater flexibility to capitalise on market dynamics.

“This project allows us to commence the supply of Fortescue Premium product to the market from existing operations in the second half of FY19 with volumes increased as Eliwana ramps up to full production,” she says.

“Fortescue has now shipped over one billion tonnes of iron ore in just ten years, generating strong returns from our position at the lowest end of the global cost curve.”

The Eliwana project will use the latest technology, including autonomous trucks, and extend Fortescue’s rail line 130km west from Solomon Hub.

Production is due to start in December 2020.

Fortescue says the project will be financed from cash flow with $US165 million budgeted in the 2019 financial year, $US760 million in 2020 and $US350 million in 2021.

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