THE aspiring developers of three major Western Australian iron ore projects – Roy Hill, Extension Hill and Southdown – all highlighted last week that raising big blocks of funding is the single largest challenge facing the sector.
The projects have all been through a long approvals process and overcome nearly every hurdle.
But with continuing uncertainty in Europe and a risk-averse global banking sector, now is a tough time for almost any business to secure funding.
Roy Hill Holdings chief executive Barry Fitzgerald was the most positive, saying he clearly and fully believed the project would get funding.
Asia Iron Australia had thought its funding was as good-as locked-in when it won the backing of a major Chinese institution, but an extraordinary political scandal in China has put a dent in its plans.
Grange has talked up its prospects in the past but last month signalled a change of tack when it announced plans to sell at least a 30 per cent stake in its Southdown project.
All three companies illustrate the challenges of taking a large and costly mining project from feasibility study into
construction.
Of the three, Roy Hill - proposed to be 55 million tonnes per annum - is considered almost certain to secure the necessary funding.
One of the project’s strengths lies in it equity investors. The majority shareholder is Gina Rinehart’s Hancock Prospecting, which was joined earlier this year by Japan’s Marubeni, South Korea’s POSCO, plus STX Corp, and China Steel Corp.
The project is advanced on many fronts, with dredging at Port Hedland complete, four 300-bed railway construction camps under way, and a contract recently awarded for a 2,000-person mine construction camp.
Long-lead items, such as rolling stock, stackers and reclaimers, have already been ordered.
Speaking at a CCI conference last week, Mr Fitzgerald (pictured above) said there were currently 1,300 people working on the project, which had already spent more than $1.3 billion.
He did not disclose the latest budget, but it is believed the project will cost a total of $9.5 billion, with most of this from banks.
The project is finalising EPC contracts with engineering and construction contractors, and negotiating with steel mills to convert letters of intent into sales contracts.
Mr Fitzgerald said the project’s contentious Enterprise Migration Agreement, which will allow it to bring in foreign workers if it can’t recruit sufficient workers locally, was an important part of the financing equation.
“We need to demonstrate to the financiers that we can build the project on time and on budget,” he said.
Mr Fitzgerald sought to put the 1,715 figure in context, saying the project would employ a total of 8,500 people at various times and would have a peak workforce of 3,600 at the height of construction activity.
“When people say you won’t be looking very hard for Australian workers, that doesn’t ring true,” he said.
Mr Fitzgerald said the project was still targeting financial close early next year, and first ore on ship in late 2014.
Asia Iron had also been targeting the end of 2014 for first ore on ship from its $3 billion Extension Hill project in the Mid West, but managing director Bill Mackenzie told the CCI conference that would not be the case.
“That can’t be met given the delays we’ve had,” Mr Mackenzie said.
The biggest problem relates to its majority shareholder, Chongqing Chonggang Minerals Development, which is enmeshed in political scandal following the arrest of the Chongqing municipality’s Communist Party boss, Bo Xilai.
Mr Mackenzie said the project had a conditional $2.4 billion offer of Chinese debt, but this could not proceed until the political issues were resolved. He emphasised that all other approvals were in place for the project, which will use a slurry pipeline to transport the magnetite from the mine to the port at Geraldton.
Grange Resources managing director Russell Clark is still targeting first production from the Southdown project in 2015, but first of all needs to find another joint venture partner.
Japan’s Sojitz Resources already owns 30 per cent of the project and Grange has appointed Deutsche Bank to help it sell at least a further 30 per cent.
Mr Clark told the CCI conference that, under the current ownership, Grange would need to put about $1 billion of equity into the project, and it was looking for a partner to contribute half of that. Only then are the banks likely to get serious about funding the $2.9 billion development.