Project Magnet will convert the South Australian steel operation to produce steel from magnetite rather than hematite iron ore, generating more than $1 billion in revenue.
After completing a feasibility study, OneSteel plans to mine its magnetite ore resource in the South Middleback Ranges in South Australia, with the product to be used at the Whyalla project.
OneSteel managing director Bob Every Tuesday said by mining the larger magnetite deposits, Onesteel would extend the life of the operations from 2020 to at least 2027 while the different chemical make-up of the iron ore meant the cost of producing steel would be lower.
Once completed, the project would give OneSteel three additional lines of revenue including the opportunity to sell off the 30 million tonnes of hematite ore it would have otherwise used, on top of the one million tonnes a year it currently sold, he said.
The project would also give the company another 3.2 million tonnes of pellets over the next 10 years and an extra one million tonnes of slab."The project will generate in excess of $1 billion in revenue over the next 10 years," Dr Every said.
The $250 million cost is $50 million higher than earlier guidance as the company elected to increase the scale to take advantage of the continuing strong demand by China.
Iron ore sales had been accelerated to three million tonnes a year, up from the original two million tonnes, Dr Every said.
Onesteel has approved $30 million for the start-up phase at Whyalla to be spent between now and December 2004.
The bulk of the $250 million expenditure would flow through over the next two years with the full benefits of all three additional revenue streams to come on line in 2006/07, Dr Every said.
In total, current mining operations at Whyalla will increase from three to about nine million tonnes a year.
Whyalla produces about 65 per cent of the company's steel processing steel from iron ore.
With high scrap steel prices expected to continue, the Whyalla expansion would enhance Onesteel's competitive advantage over its regional competitors, who produced steel from scrap, Dr Every said.
He said ongoing strong demand from China meant scrap steel prices were expected to remain high, at between $US250-300 a tonne, for some time.
South Australian premier Mike Rann said the project was great news for the state and a solid foundation on which to build Whyalla's future.
"The company's huge investment in this project is a vote of confidence in South Australia and will allow the people of Whyalla to look to the future with a high level of confidence," he said.