Mining hotspot in jeopardy - proceed with caution

Investors should proceed with caution in the Pilbara given recent announcements from Rio Tinto, according to Helen Collier-Kogtevs from Real Wealth Australia.

There are concerns Rio Tinto may not proceed with some new mines in WA’s Pilbara district after it widened its iron production guidance for the next five years.

Rio Tinto told analysts in Perth that annual exports of iron ore could range from 300 million tonnes to 375 million tonnes in 2018. But back in May it said that figure would be 360 million tonnes to 375 million tonnes, The Australian reports.

That means annual mine production could only rise marginally from the 290 million tonnes it plans to reach next year after a US $10 billion ($11.15 billion) expansion is finished.

Collier-Kogtevs says announcements like these should raise red flags for investors.

“I caution any investor looking at the Pilbara or any mining region to do extreme due diligence,” Collier-Kogtevs told Property Observer.

“When it comes to considering mining towns for investment they are high risk for a reason. Yes you get high returns but they are high risk and you really need an exit strategy in place.”

But despite the risk, there is still money to be made in the Pilbara.

“I would not say avoid at all costs. I have clients investing there and making a truck load of money. But I have people contacting me who have invested there who are in a whole lot of financial pain.”

“It’s all about doing the research. Understand what’s going on and not just at a micro level, you have to understand what’s happening with mining at the macro level.

“A lot of investors have come unstuck not looking globally and the impact that has on our resource market.”

In February 2012 Collier-Kogtevs recommended the Pilbara towns of Newman and Port Hedland as investor hotspots.

She described Newman as a town with a medium investment risk.

“Newman experiences high capital growth, high positive cash flow, medium to high entry level cost and medium risk. The town is strategically important to the national economy, has great historical performance and great projected performance, low vacancy rates, a high per capita income level and a high demand for housing,” Collier-Kogtevs wrote at the time.

“Port Hedland experiences high capital growth, high positive cash flow, high entry level costs and medium risk.”

Since then, Collier-Kogtevs says mining has gone off the boil.

“When I contributed to that article I was looking 12 months ahead,” she told Property Observer, “the landscape has changed.”

“I really didn't expect the government to bring in two new taxes. There a couple of things out of your control as an investor – death, taxes, changes in government and laws. So you do the best you can with the information you've got or the research that you’ve done do to make the best financial decision for yourself and circumstances.

“I'm aware of people buying off the back of a hotspot being nominated. I try and tread with caution; I'll share my opinion but I make sure to tell people to do their extreme diligence and base their decisions on their circumstances.”