Article by Luke Kinsella, courtesy of The Australian Financial Review.
07.11.2025
Rio Tinto’s Simandou mine in West Africa, which is expected to add 60 million tonnes of iron ore supply and weigh on global prices of Australia’s key export, could reduce government revenue by $10.5 billion as mining tax income falls.
The $35 billion development of the Simandou mountain range in Guinea is considered a threat to the supremacy of Western Australia’s Pilbara region in the global production of iron ore. It is also likely to make Treasurer Jim Chalmers’ job of balancing the budget more difficult.
“Simandou has long been considered the dagger to the heart of Australia’s iron ore exceptionalism,” independent economist and budget expert Chris Richardson said. “If nothing else, it would bring prices down and take away some of the super profits.”
Simandou is expected to operate at full capacity, producing 60 million tonnes of iron ore, by 2028 or 2029. A nearby rival mine developed by the Singapore-based Winning consortium will also begin producing 60 million tonnes per year around the same time.
The extra supply is expected to weigh on iron ore prices, with analysts predicting falls of between $US12 and $US30 per tonne within the next five years, from the current price of $US103. Citibank has forecast a long-term iron ore price of $US85 per tonne, while RBC Capital Markets predic
Over the past 20 years, high commodity prices have propped up revenue in the federal budget. The price of iron ore drives the profits paid by commodities giants such as BHP and Fortescue, and, therefore, it has a significant impact on the government’s corporate tax revenue.
Mining giants paid over half the corporate tax received from Australia’s biggest companies in 2023-24, according to Australian Taxation Office data.
In the 2025-26 budget, Treasury forecast that a $US10 per tonne reduction in the iron ore price would reduce tax receipts by $3.5 billion over four years. A price drop of $US30 per tonne could cost the budget $10.5 billion in revenue.
The budget has forecast deficits for the next decade, with a surplus not expected until 2035-36.
Rio Tinto’s mine is expected to start production in 2028 or 2029. Treasury has only modelled how a drop in the iron ore price today would affect the budget over the next four years. The exact impact of Simandou’s iron ore production on the federal budget will depend on the state of the iron ore market when the mine opens.
Richardson said the impact would be even higher than $10.5 billion due to the way Treasury calculates the exchange rate impact of iron ore price shocks, which offsets some of the decline in lost corporate tax revenue.
He said Treasury’s methodology overstates the impact on the exchange rate and, therefore, the impact on budget revenue could be even higher.
Both additional supply from Simandou and lagging demand from China could suppress the iron ore price, according to Richardson.
“This magical moment in Australian history, where the world just threw money at us, a huge pay rise, was always going to come to an end. Simandou has been as symbolic of that as anything else,” he said.
“The rise of China was historically weird. Not only was it such a large nation in terms of population, but its development was at such a speed, and it was also very focused on heavy industry.”
Betashares chief economist David Bassanese said that the budget assumes the iron ore price will fall to the cost of production due to competition between international suppliers.
The March federal budget assumed the price of iron ore would fall to $US60 per tonne by March 2026, from the $US104 it was at the time. This means that current forecasts already account for the price drop resource analysts expect as a result of declining demand from China and increased supply from mines such as Simandou.
However, Treasury’s assumption has been criticised for being too conservative. Bassanese said these conservative predictions had enabled governments to claim budget improvements when they booked higher-than-expected tax revenue from mining.
“Chinese demand has held up better than expected, and there’s been more supply disruptions due to weather events in both Australia and Brazil,” Bassanese said. “It may well be that the treasurer can’t continue to pull the rabbit out of the hat.”
He said that, depending on the timing of when the Simandou mine comes online, it was possible that Treasury’s conservative forecasts for a much lower iron ore price start to “reflect reality”.
ts it could fall to $US75 per tonne by 2028.