The Government’s recent $10 billion resource plan included the possibility of an aluminium smelter in WA. Jim Hawtin addressed this and other issues with State Development Minister Clive Brown.
The Government’s recent $10 billion resource plan included the possibility of an aluminium smelter in WA. Jim Hawtin addressed this and other issues with State Development Minister Clive Brown.
WABN: Has the WA Government been approached about the possibility of constructing an aluminium smelter in WA?
BROWN: Certainly there was an investigation, not a detailed one, but there was a preliminary investigation to see whether it would be viable to set up an aluminium smelter in WA.
WABN: Who was it?
BROWN: Unless the company’s disclosed it I don’t think that is appropriate for me to say.
WABN: Are they still looking at it?
BROWN: No they are not still looking at it.
WABN: Have they ruled it out?
BROWN: Well, they’re not looking at it for an expansion of their operations at the present time.
WABN: Do they have operations in WA, now?
BROWN: Well, I don’t want to say what operations they have got because there are not too many people in the aluminium industry.
WABN: But do they have operations here at the moment, and you do not have to say what operations they have, just if they do or not?
BROWN: Well, … no they don’t.
WABN: Aldoga Minerals says it “hasn’t ruled it [aluminium smelter] in but has not ruled it out”, and, anyway it is a long way down the track.
BROWN: Oh yeah, sure, sure I mean, that is a huge decision to make and obviously companies are going to want to do their sums very carefully. They are going to need to make sure that all of the variables are such that an investment like that will stack up.
And of course while we are very keen to see an investment occur, we are equally keen to see investments in WA that are successful. We don’t want to see investments in WA that are unsuccessful because that is no good for the medium-term interest of the State. What we want is successful developments that are going to provide a good return for the State but also successful developments that are also seen as successful in the eyes of their shareholders.
WABN: How realistic is an aluminium smelter in WA at the moment, or is it just an ambitious dream?
BROWN: The point that I have made is this that there are a number of proposals. The Pinjarra expansion by Alcoa is under way. There is a proposal for further expansion of Worsley. There is a proposal for further expansion of Wagerup.
Now, those matters are still of course under review and they will go through an environmental process and that will take about 12 months. But if those two projects get approval, WA will be a major player in the provision of alumina, an even greater player that it is today.
Secondly, world gas prices are undergoing a significant change, particularly with the US becoming a major importer of LNG, the UK becoming a major importer of LNG and so on.
So world gas prices are changing, which in turn means world power prices are going to look to change as well, particularly where people are going to go for gas-fired power stations rather than coal.
In terms of an alumina smelter, while our power prices in the past have been a determinant to the fact we haven’t been successful, by comparison to others.
I think when we start to look to the future we start to see this re-jigging of power prices around the world in what people are going to be doing.
Our power prices by virtue of that are going to change and they are going to become more competitive.
And so I think if you put those two things together – the fact we have the prospects to further grow the alumina industry. You put together a change in world gas prices and expansion of the LNG market and the fact we are able to in the one location deliver both alumina and significant power by way of using the gas resources.
WABN: Reduced power costs?
BROWN: If gas prices around the world move its going to make us more competitive.
WABN: Which makes something like a smelter viable?
BROWN: It makes it more viable than what it has been in the past. It is not a matter of us reducing our prices, and I think it is a matter of the fact that there is going to be a change here.
We are seeing it already, and over the next five to 10 years it is going to become more pronounced.
So if we do continue to increase our level of alumina production and the fact we have got gas on our doorstep and more plans for it to come to shore, it starts to become a more attractive proposition. Well, it starts to become a more competitive proposition at least.
The Kimberley is emerging as a possible new bauxite-producing region in WA. The long-held Mitchell Plateau bauxite deposit could play a part in boosting WA’s alumina production. The State agreement under which the deposit has been held for the past 30 years is coming to a close and several major players are jostling for control.
WABN: Are the three-way negotiations between the Government and Rio Tinto-led joint venture and third parties regarding the Mitchell Plateau occurring in the correct manner?
BROWN: What we have said all the way along is that the joint venture partners have a State agreement and the resource is for them to take forward if they wish to.
And if that’s the case it’s the State’s resource but they have the rights to exploit the resource and go forward under the State agreement.
If they were to say that to us tomorrow … they wanted to go ahead with a proposal, then good on them, they are going to get on with it.
If, however, they are of the view the proposal is not economically viable then clearly we need to put that to the market test.
If the market indicates it is economically viable, and if there are at least one or more people in the market who are prepared to go to major feasibility studies, that is actually invest reasonably and substantially in major feasibility studies when the JV isn’t, then it would seem that there is an opportunity to develop this, which the JV doesn’t wish to take up.
Now the State agreement doesn’t give them that luxury, the State agreement is between two parties.
It puts obligations on the State in terms of resource security and obligations on the JV’s in terms of development of that resource.
And the State must maintain the agreement so long as the other party maintains its part of the agreement.
And if there is an opportunity to develop, which that party doesn’t wish to take up, then the State is then free under agreement to do what it, can under the agreement.
WABN: What about the amount spent by a third party on a feasibility study to be considered. The JV has already spent significant amounts looking at the resource.
BROWN: That is something we will have to look at.
But at the moment we have asked for people to come up with just a preliminary study where they have got no rights to the land at all and the rights still reside with the JV.
We have asked them that, if they are interested, they have got to undertake a preliminary piece of work, which is not going to be inexpensive.
Then after that, and if they are going to proceed, then they are going to really need to stump up a fair bit of money to undertake that study.
We are very much about wanting good public policy outcomes on this and obviously one good public policy outcome is that the JV goes ahead and develops the resource.
An equally good public policy outcome is if the whole process shows no-one is interested … we can then give [the JV] an extension because no one is interested.
A third good public policy outcome is if the JV says we don’t want to develop it and someone else is prepared to invest a reasonably significant amount of resources to a full feasibility study.
We would allow them to do a full feasibility study and I think all of those are defendable in terms of good public policy.
Now in those circumstances, how is the public interest best served? It is served by allowing those who want to develop it to go ahead and develop it.
Now, we are not breaking the State agreement.
It would be different if it had a renewal period until 2006.
But the fact of the matter is the State agreement is up and there is no breach on our part.
Timeline
December 2003: The 30-year-old Alumina Refinery (Mitchell Plateau) Agreement 1971, which covers the Mitchell Plateau bauxite deposit in the far north Kimberley, to end December 31.
Dec 2003: The agreement is controlled by a joint venture consisting of Rio Tinto subsidiary Comalco (66 per cent), Alcoa (22 per cent) and AngloGold (12 per cent).
December 2003: It becomes known that the State Government has received interest in the deposit from a number of major international alumina players, including Russian company RuSal.
December 2003: Wanjina/ Wungurr-Willinggin Native Title and the Ngarinyin Native Title claim, between Derby and Wyndham, is awarded over part of the Mitchell Plateau.
December 2003: The State Government extends the JV’s Alumina Refinery (Mitchell Plateau) Agreement 1971.
March 2004: It becomes known Queensland miner Aldoga Minerals has applied for several leases in the region and shown interest in the Mitchell Plateau deposit.
April 2004: Joint venture agrees to allow the third party access to the Mitchell Plateau deposit.
July 2004: Five mining companies apply to the WA Government for access to previously closed geological data on the Mitchell Plateau.
