Why POSCO Invested in Mines

[Image source=Yonhap News]

[Asia Economy Reporter Park So-yeon] POSCO has received a dividend payment worth 50 billion KRW from Roy Hill Holdings.

The board of directors of Roy Hill Holdings resolved on the 24th of last month to pay dividends based on the company's improved financial soundness and solid earnings. This is said to be the first dividend since the founding of Roy Hill Holdings. The total dividend amount is 475 million Australian dollars (approximately 403.6 billion KRW), of which POSCO will receive about 50 billion KRW this month, corresponding to its 12.5% stake.

Roy Hill Holdings is a corporation established to develop the Roy Hill mine located in the Pilbara region of northwestern Australia. The major shareholder is Hancock (70%), and POSCO (12.5%), Marubeni Corporation (15%), and China Steel (2.5%) formed a consortium to jointly invest.

The Roy Hill mine is the largest single mine in Australia, with iron ore reserves reaching 2.3 billion tons. The iron ore exported by Roy Hill Holdings amounts to 55 million tons annually, ranking it fifth in the world.

POSCO signed a cooperation agreement with Roy Hill Holdings in 2010 for mine development. At that time, iron ore prices were very unstable due to the oligopoly of raw material suppliers, and POSCO decided to invest to secure a stable supply of high-quality iron ore.

Iron ore prices, which were initially $130?140 per ton at the time of investment, plunged to around $56 per ton in 2015, raising concerns about the investment. POSCO prioritized business stabilization and has been dedicated to mine development and operational efficiency.

Starting with 6 million tons of iron ore procurement in 2016, just two years after mining began, POSCO now reliably receives 15 million tons annually, accounting for 26% of its yearly demand.

This year marks the 10th anniversary of POSCO's investment in the Roy Hill mine. Despite the global difficulties caused by COVID-19, the large-scale dividend from Roy Hill Holdings dispels concerns and demonstrates that the business is on track.

Roy Hill Holdings' management performance has rapidly improved since the full-scale start of commercial production in 2017, with operating profit reaching 3.2 billion Australian dollars as of the June accounting period this year. Accordingly, POSCO's equity-method profit increased from around 12 billion KRW in 2016, the early production stage, to approximately 150 billion KRW in 2019.

Additionally, in August this year, Roy Hill Holdings fully repaid the 6.2 billion USD loan borrowed for mine development ahead of schedule. The repayment deadline, originally set for September 2024, was brought forward by over four years, significantly improving financial soundness and suggesting continued dividend receipts in the future.

Meanwhile, POSCO began overseas raw material development in 1971, before the Pohang Steelworks started operation in 1973, and since its equity investment in the Mount Soli mine in Australia in 1981, it currently holds development rights for steelmaking raw materials in 23 locations worldwide.

This content was produced with the assistance of AI translation services.