Iron ore, gas lead trade deals

The burgeoning demand for gas and iron ore has made 2005 a year to remember, with several large deals for these commodities signed with major international customers.

The big players in Western Australia’s LNG market negotiated a number of contracts towards the end of last year, with Woodside Energy Ltd and Chevron Australia Ltd making the most of interest shown by Japanese companies.

Chevron announced a deal for 1.5 million tonnes a year (mtpa) over 25 years with Osaka Gas Co Ltd from the $11 billion Gorgon project at Barrow Island. Chevron also reached an agreement with Japanese power company Chubu Electric Co Inc for 1.5mtpa of Chevron’s share of Gorgon LNG over 25 years, commencing in 2010.

Chevron also agreed to a 25-year deal to sell 1.2mtpa of gas to Tokyo Gas from 2010.

These deals represent almost the total sale of Chevron’s share in the first phase of the Gorgon project, worth close to $30 billion over 25 years from 2010.

Woodside signed up Tokyo Gas Co Ltd for up to 1.75mt of LNG a year and a number of North Asian customers for up to 4mtpa for 20 years from 2010 from its Pluto development.

At the time, Woodside’s Pluto LNG director Lucio Della Martina said discussions were also progressing with potential customers in the US.

Growth in demand for iron ore also resulted in a number of trade opportunities arising for the state’s producers, particularly with Chinese customers.

Fortescue Metals Group Ltd signed sales agreements of 12.5mtpa with nine Chinese steel mills for terms of 10 years. This brings Fortescue’s total sale agreements to 30mtpa, or 67 per cent of its initial planned production of 45mtpa, with the company saying it has achieved its goal of having two-thirds of its planned production under contract.

BHP Billiton Ltd secured long-term sales contracts worth approximately $US4.3 billion with the signing of the JFE Western 4 Joint Venture with JFE Steel and ITOCHU Minerals & Energy of Australia, and Mitsui Iron Ore Corporation.

Under the joint venture, of which BHP holds a 68 per cent interest, sales of approximately 16mtpa will be made over the next 11 years.

Murchison Metals Ltd had a positive year, signing four sales contracts worth about $95 million to supply ore from its $24 million Jack Hills Stage 1 project.

Tangshan Dangyang Group will buy 540,000 tonnes of iron ore a year for the first three years and then up to 2mtpa of ore from the Jack Hills Stage 2 project in 2009.

Murchison snared a major player in South Korean POSCO Ltd, the third largest producer in the world, which has taken a 5.5 per cent stake in the company. POSCO has the right to go to a 19.9 per cent and take up to 10mtpa over 25 years from Murchison’s $950 million Jack Hills second stage development.

MidWest Corp Ltd signed a joint venture with giant steel company Sinosteel Corporation to develop its $1.5 billion Weld Range and Koolanooka iron ore projects.

Mt Gibson Iron Ltd partnered up with China’s fourth largest steel maker, Shougang Group, to develop a 5mtpa operation at Extension Hill, 300 kilometres south-east of Geraldton.

Under the agreement, Shougang and Asian Iron Co Ltd, a wholly owned subsidiary of the 80 per Mt Gibson owned Asia Iron Holdings Ltd, will each buy 2.5mtpa of magnetite concentrate from Extension Hill for the life of the mine.