The world's second largest iron exporter also happens to be one of the largest cattle ranches in Australia. Both of those commodities are in high demand from China.
Rio Tinto Group is the world’s second-largest exporter of iron ore. It’s also one of Western Australia’s biggest cattle ranchers, with room for 25,000 head to graze on land spanning an area larger than Connecticut.
Global demand is surging, driven in large part by China’s expanding appetite for beef. At the same time, prices for iron ore are projected to slip. That’s making cattle more attractive to Australian mining companies, a complementary business that generates revenue from land that otherwise would be idle.
Hancock Prospecting Pty, the mining company owned by Australia’s richest woman, and Andrew Forrest, the billionaire founder of Fortescue Metals Group Ltd., the world’s fourth- biggest iron ore exporter, are also moving into the cattle industry.
"The trouble with iron ore is you have to dig it out and move it by truck but the great thing about cattle is they walk there for you," Australia’s Agriculture Minister Barnaby Joyce, said in a phone interview. For mining companies, "it’s just the movement of another commodity."
Purchases of Australian food and agriculture assets have had the strongest first half in at least 12 years, with more than 20 deals announced this year worth at least $2.6 billion, according to data compiled by Bloomberg.
They include Forrest’s May acquisition of Harvey Beef, Western Australia’s only licensed beef exporter to China, and Hancock’s purchase of a 50 percent share last month in two cattle stations, or ranches, in Western Australia’s West Kimberley.
Joyce expects to see more such deals by mining companies. "They are key people with the right expertise to make this work."
Forrest, who once farmed alpacas and grew up on his family’s Minderoo ranch, this year founded the Australia Sino Hundred Year Agricultural and Food Safety Partnership to facilitate discussions between Australian suppliers and Chinese consumers.
He held talks with Chinese Premier Li Keqiang in April to discuss the bilateral agricultural partnership. The world’s most populous nation is so desperate for good beef that Forrest told Bloomberg News in May he would be taking steak samples in his luggage on his next trip.
Australia, the world’s third-largest beef exporter, saw beef and veal exports to China surge 76 percent in fiscal 2014, according to the Australian Bureau of Agricultural and Resource Economics and Sciences.
China is already the biggest consumer of meat and may double beef imports by 2018 as the country’s increasing wealth drives changes in consumers’ diets, Rabobank International said in December.
Rio Tinto Ranches
Rio has six ranches in the Pilbara that cover more than 1.5 million hectares (5791 square miles) of land, to allow access for exploration, infrastructure development, water management and future mining and production, according to its Website.
"We are conscious of an opportunity in relation to agriculture," London-based Rio’s Chief Executive Officer Sam Walsh said in Perth on July 23. With Australia’s vast expanses of land, there’s huge opportunity, he said. The company began leasing some of its land in 1966 and may consider expanding its holdings.
Australia’s benchmark Eastern Young Cattle Indicator slipped 0.2 percent to A$3.35 a kilogram yesterday. It has gained 14 percent this year after two years of declines.
That makes this a good time to move into beef, said Paul Deane, senior agriculture analyst at Australia and New Zealand Banking Group Ltd.
"You’re are buying at the bottom of the cycle and that’s attractive," Deane said by phone from Melbourne.
In the U.S., cattle futures are up 26 percent in the past year in Chicago and set for a sixth annual gain as increases in consumer spending in the nation help the economy rebound. Prices rose to a record last month as slaughter numbers declined.
Iron ore prices are expected to fall to $96 a metric ton in 2018, from a forecast of $102.50 in the current quarter, according to data compiled by Bloomberg.
Mining companies in Australia have long been associated with farming and have often bought properties outright to ease access for exploration and mining access. Many mines share the same name as the stations where they’re located, including Rio’s Hamersley Mine and Fortescue’s Christmas Creek operation.
Mulga Downs Station
Gina Rinehart, Hancock Prospecting’s chairman, spent part of her childhood growing up on the Mulga Downs station. Her father Lang Hancock discovered the outcroppings of iron ore in Western Australia that made the nation the world’s biggest exporter.
Melbourne-based BHP Billiton Ltd., the world’s biggest miner, holds pastoral leases in Queensland and Western Australia, according to filings. BHP spokesman Paul Hitchens declined to comment on whether the producer plans to add to its holdings of pastoral land.
Mining companies "have extensive cattle operations and they will look to maximize the return on those investments," Rob McConnell, Deloitte National Agribusiness Leader, said by phone from Brisbane. "The time is right for doing exactly that."