CANADIAN MINING PERSPECTIVE: Expensive transportation part of mining costs

The cost of buying an ocean-going vessel to transport iron ore is over $100 million dollars, and RIO TINTO is purchasing three of them. Each ship will be 250,000 tonnes deadweight, and move ore from the company's mines in Western Australia to China and elsewhere. They will be built at Namura Shipyards in Japan for delivery in late 2012. Total cost is US$315 million.

Our readers may not be aware that Rio Tinto created RIO TINTO MARINE in 1996. The division was small at first, transporting about 17 million tonnes per year around the South Pacific Ocean. The business has expanded to 70 million t/y in 2006 and over 100 million t/y this year.

Rio Tinto's subsidiary, PILBARA IRON, operates 11 mines and related facilities in Western Australia. With demand from China expected to double after 2010, Pilbara Iron is expanding its output to 220 million tonnes by 2009. Building new ore carriers, although expensive, is expected to add flexibility to Rio Tinto's transportation strategy. Operating the ships will not be cheap either, as the price of crude oil continues to rise.

I remember when you could develop a large-scale open pit mine in Latin America for $300 million or a small one in Canada for $100 million. My memory goes back as far as 30 years for those numbers. These days copper and nickel developments run into the $1-billion to $2-billion range. The concept of "billions" is mind-boggling to me. At least I can get my mind around "hundreds" and "thousands", and that sale of number will cover gold projects for the time being.