18/06/2007 - 15:22

Murchison and Mitsubishi strike $3bn iron ore deal

By Mark Beyer

18/06/2007 - 15:22

Rival iron ore miners in the Mid West region have formed up in two competing camps, with Murchison Metals Ltd today signing a deal with Japan's Mitsubishi Development Pty Ltd to develop mining and infrastructure businesses at a cost of up to $3 billion.

This follows last month's announcement that Midwest Corporation Ltd and Yilgarn Infrastructure Ltd, which are backed by various Chinese entities, have agreed to work together.

The competing groups are keen to develop rail and port infrastructure, at a likely cost of about $2 billion, to service a series of iron ore mines planned for the region.

The competition between the rival groups has infuriated the state government, which wants the mining companies to reach agreement on a single infrastructure provider.

Midwest had previously been working in partnership with Murchison but last month switched camps and agreed to start working with Yilgarn.

If the industry fails to reach an agreed position, the government has threatened to commence a competitive tender process that is likely to delay development.

Under the agreements announced today, Mitsubishi will acquire 50 per cent of Murchison's iron ore business, including Murchison's flagship Jack Hills project in the mid-west of Western Australia.

The agreement also provides for the establishment of a dedicated infrastructure business to develop new multi-user port and rail facilities in the region.

"The agreement envisages a total investment of approximately $3 billion to be funded utilising equity capital to be contributed by Mitsubishi and a debt funding package, the arrangement of which will be managed by Mitsubishi, leveraging its global financial resources and world-renowned development capabilities," Murchison said in a statement.

"The creation of this formidable business relationship with Mitsubishi should ensure that Murchison realises its ambition to become a world-class iron ore and infrastructure company," Murchison executive director Paul Kopejtka said.

"With Mitsubishi's wealth of experience in mine and infrastructure businesses, and this commitment to effectively underwrite mine and infrastructure development costs that are likely to approach $3 billion, the infrastructure business established by Murchison and Mitsubishi will allow the rapid advancement of the mid-west region."

Murchison said the new iron ore mining business would be conducted through Iron Jack Ltd, a wholly owned subsidiary of Murchison.

Mitsubishi will acquire a 50 per cent stake in Iron Jack, with an upfront payment of $150 million. A second deferred payment will be made when construction of the project is set to commence, and will be based on the value of the project at that time.

Murchison said the newly established infrastructure business would transport expanded production from Jack Hills and other regional miners that are likely to emerge in the future.

"Today marks a very significant step forward towards the development of new Mid West rail and port infrastructure," Mr Kopejtka said.

"We believe the new infrastructure business will deliver the most cost efficient transport and logistics solution for the Mid West region."

Murchison is producing about 1.5 million tonnes per annum from its Jack Hills project.

The company is looking at a stage two expansion, ramping the projects annual output up to 25 million tonnes per annum.

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