12/09/2006 - 22:00

Giants dominate the boom

12/09/2006 - 22:00


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The oil and gas and iron ore sectors are leading WA’s investment boom, WA Business News’ third annual survey of major projects has found.

Giants dominate the boom

Western Australia’s project boom has four defining characteristics.

First and foremost is the sheer scale of the boom. In the past two years, major resources and infrastructure projects worth $11 billion have been completed.

A further 30 projects collectively worth $25 billion are currently under way and the future potential seems almost unlimited.

Second is the resilience of the boom in the face of acute skills shortages and sharp cost increases.

Project owners have been able to cope with 30 to 40 per cent cost increases because the prices of their products, such as iron ore and liquefied natural gas (LNG), have increased even faster.

Third, and closely related to the second, is the dominance of the iron ore and oil and gas sectors, which account for more than half of all project investments.

A fourth defining characteristic is the prominence of just a few giant resource companies.

BHP Billiton and Rio Tinto are the world’s biggest mining companies, so it stands to reason they would play a big part in the current boom.

Rio Tinto's iron ore business, under chief executive Sam Walsh, has invested about $5.4 billion in WA in recent years and Rio is also making a big investment in its Argyle diamond mine.

BHP has invested in LNG and oil projects, alumina refineries and nickel projects but, like Rio, its biggest investment has been in iron ore.

Under WA iron ore president Ian Ashby, BHP has invested $3.7 billion in its iron ore projects in recent years.

Oil and gas producer Woodside, under chief executive Don Voelte, is also at the forefront of the boom, with nearly $9 billion invested in projects either owned or operated by the Perth-based company.

Whether these companies remain as prominent will depend on how many projects other producers manage to deliver to the market.

The iron ore sector illustrates the challenges facing prospective entrants to the industry.

Lack of port and rail infrastructure in WA has been a large barrier for aspiring producers in both the Pilbara and Mid-West regions.

While several companies have started work on small-scale starter projects, only one has commenced a new large-scale iron ore mining operation.

Andrew Forrest’s Fortescue Metals Group started major site works earlier this year for its $3.7 billion Pilbara iron ore and infrastructure project.

Many pundits thought the FMG project, which encompasses the construction of a new port at Port Hedland, a new rail line and new mines, would never see the light of day.

But FMG defied the sceptics when it completed a mammoth fund-raising task last month, clearing what appeared to be the last major obstacle.

FMG is aiming to become the third big iron ore producer in the Pilbara, with expected annual production of 45 million tonnes.

This is about one-third the output of each of the two big players, Rio Tinto Iron Ore and BHP Billiton Iron Ore.

Rio’s biggest project is Hope Downs, effectively two projects in one. Rio has formed a joint venture with Gina Rinehart’s Hancock Prospecting to develop a 22 million tonnes per annum mine at a cost of $790 million and will spend a further $520 million on the associated railway, rolling stock and power infrastructure.

Collectively, the iron ore projects currently under construction account for more than a third of the $25 billion worth of project investment under way.

The oil and gas sector also makes a big contribution to this total.

Woodside is involved in all of the big oil and gas projects, as either the operator or an owner.

The biggest project in the sector is the $2.4 billion phase five expansion of the North West Shelf venture gas plant, which like many projects has suffered from a large cost blow-out.

The project will increase the NW Shelf venture’s LNG output to 16mtpa, reinforcing its status as the country’s single largest resource project.

The NW Shelf venture has also commenced work on the $1.6 billion Angel gas field development.

Angel will become the venture’s third major offshore gas platform, feeding its onshore LNG plant.

The Angel platform will be located in 80 metres of water about 50 kilometres east of the venture’s existing North Rankin platform.

Another major project to start this year was Woodside’s 60 per cent owned Vincent oil field development, located about 50km north-west of Exmouth.

Woodside is also a 50 per cent owner of the Stybarrow oil field, which BHP Billiton is developing at a cost of $800 million.

The development of Vincent and Stybarrow followed commissioning of the Enfield oil field earlier this year. Collectively, these projects will produce up to 300,000 barrels of oil per day, providing a substantial boost to regional output.

Outside of the iron ore and oil and gas sectors, by far the biggest project decision taken this year was the go-head for the $2 billion Boddington gold mine, located in WA’s South West.

Owned jointly by US company Newmont Mining (66 per cent) and South Africa’s Angolold Ashanti (33 per cent), the project will result in the re-opening of a mine that has been closed for several years.

Newmont chairman Wayne Murdy described Boddington, which has 11 million ounces of gold reserves, as “one of the world’s largest undeveloped gold projects”.

“We believe the exploration opportunities at Boddington hold the potential to ultimately double reserves,” Mr Murdy said.

Another big project to gain approval was Rio Tinto’s $1.2 billion Argyle diamond mine development.

The development will convert Argyle from an open pit mine to an underground mine and will extend its life to 2018.

Rio committed to the project only after the state government granted a number of concessions.

“The WA government’s agreement to provide royalty relief and waive some secondary processing obligations has been fundamental to the economics of the expansion and will ensure Argyle continues to play an important regional role,” Rio chief executive Leight Clifford said.

Large projects that continued in development this year include BHP Billiton’s Ravensthorpe nickel project and the state government’s New MetroRail project, both of which suffered cost blow-outs.

BHP has twice increased the budget for Ravensthorpe, which is expected to cost about $2.3 billion, or 66 per cent above the original estimate.

The cost blow-out on the rail project has been a relatively modest 14 per cent above the 2002 estimate.

A big difference between the two is that Ravensthorpe, like projects in the Pilbara, faces the added cost of luring workers to a remote location away from their homes.

Several projects completed during the past 12 months also suffered cost blow-outs.

Major projects worth nearly $7 billion have been completed over this period.

The iron ore sector accounted for nearly $3 billion of the total, with Rio Tinto, BHP Billiton and Portman all completing major expansion projects.

In the oil and gas sector, Woodside completed its $1.5 billion Enfield oil project, while Apache Energy commissioned the $300 million John Brookes gas project, and Roc Oil completed the $285 million Cliff Head oil project.

Other recently completed projects included Burrup Fertilisers’ $700 million ammonia plant on the Burrup Peninsula, Alcoa’s $580 million expansion of its Pinjarra alumina refinery and Worsley Alumina’s $260 million expansion of its alumina refinery near Collie.


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