Iron ore sector not content to play second fiddle to Gorgon

24/09/2009 - 00:00


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Giant LNG develop-ments such as the massive Gorgon project are only half the story behind the boom conditions reappearing in WA.

Iron ore sector not content to play second fiddle to Gorgon

MORE than $2 billion in iron ore-related contracts have been awarded during the past six months, defying perceptions that the sector is struggling because of the global financial crisis.

The surge in new work reflects resurgent Chinese demand and stabilising global economic conditions, which have allowed existing producers such as BHP Billiton and Rio Tinto to step up a $10 billion-plus rolling expansion of their Pilbara operations.

Meanwhile, Citic Pacific's $5.2 billion Sino Iron magnetite project at Cape Preston, south-west of Karratha, is generating significant long-term work opportunities, while a number of other major new developments are expected to kick off in coming months.

First cab off the rank is likely to be a $500 million mining contract for Gindalbie Metals' $1.8 billion Karara magnetite project in the Mid West, due to be awarded in November, followed by construction contracts for the $4 billion Oakajee deepwater port and rail development next year.

Similarly, Fortescue Metals Group hopes to finalise a $6 billion funding package from Chinese banks by the end of this month, which would enable it to proceed with plans to double its Pilbara capacity to 96 million tonnes per annum.

Kim Hyman, company secretary for Welshpool-based contractor NRW Holdings, said the strong outlook for iron ore had escaped most people amid the hype over Gorgon.

"Gorgon has overshadowed what's happening further south ... within Western Australia there is a huge amount of opportunity and it is not Gorgon-related," he said.

Much of that opportunity can be attributed to a single project - BHP Billiton's massive Rapid Growth Project 5 - which will boost its Pilbara iron ore output to 205mtpa by late 2011.

A mini-economic stimulus package in its own right, RGP5 will cost a staggering $6.8 billion to complete. More importantly, it is being undertaken in parallel with BHP's RGP4 project, which is itself worth about $2.6bn. The incremental RGP4 expansion, will lift BHP's Pilbara output by 26mtpa to 155mtpa when complete in mid-2010.

Applecross-based engineering group Monadelphous was the most recent beneficiary of RGP5, last week securing a $70 million contract to upgrade stockyard, rail load-out and ore handling facilities at the Yandi mine.

RGP5 is also responsible for the single biggest contract awarded since March - a $500 million contract with Macmahon Holdings and Leighton to duplicate the 220 kilometre northern section of its Pilbara rail network.

NRW, too, has been a big winner from RGP5, securing a $200 million contract to duplicate the southern section of the line in partnership with John Holland and Laing O'Rourke Australia.

"RGP5 is chewing up engineers like there is no tomorrow, and certainly as far as expansion goes, it's the lynchpin of the whole Pilbara," Mr Hyman said.

Despite the perceived downturn in the iron ore sector, NRW's heavy exposure to the sector has been the key to its financial strength. NRW last month reported record revenue and earnings for the 2009 financial year, and expects revenue to climb a further 20 per cent to about $600 million this financial year.

Mr Hyman said apart from the impact on its share price, the global downturn had actually had "zero effect" on NRW's business.

"We've got a very healthy order book and we certainly don't see that changing in the foreseeable future," he said. "We are very bullish."

One of the projects underpinning NRW's order book is Citic Pacific's massive Sino Iron magnetite development at Cape Preston.

Although China Metallurgical Construction Co is lead contractor and all high-end plant design and fabrication work has been awarded to specialist overseas providers, the project still offers significant local opportunities.

NRW and fellow WA engineer VDM Group have already won almost $350 million in mining and construction contracts. More than 20 additional contracts remain to be awarded before the stage one operation is completed next year.

Furthermore, Citic Pacific is planning several additional expansions over the coming decade.

Another company eyeing opportunities in the sector with confidence is rail services specialist O'Donnell Griffin Rail. The Norfolk Group subsidiary is already well established in the WA iron ore sector and in June won a $96.5 million contract to install a new rail signalling system for RGP5.

'The WA opportunities are simply enormous," O'Donnell Griffin general manager Dave Howe told WA Business News.

"There is a plethora of opportunities coming up - all you've got to do is look at the Mid West with Oakajee. When it gets going, there are 470km of main line rail that need to be done, plus spur lines and all the other stuff, and then there are the port works - it's just phenomenal."

Mr Howe said the biggest hurdle for local companies wanting to share in the bounty would undoubtedly be people, especially given the level of parallel demand from Gorgon and other LNG projects for skilled workers.

"By the end of the first quarter of next year it's going to be a state of absolute chaos for anyone trying to get resources," he said. "We are now in a position where we have to start recruiting internationally, purely and simply because there is an absolute dearth of talent in Australia and, I hate to say it, no-one is trained."

Mr Howe enthusiastically supported Premier Colin Barnett's call for easing restrictions on the import of skilled labour using 457 visas.

"That has to happen - Australia hasn't trained enough people over the last 25 years to meet the current needs, let alone what's going to happen in the West over the next few years," he said.



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