04/02/2009 - 22:00

No deterring miners’ Mid West plans

04/02/2009 - 22:00


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THERE'S not much talk of the global economic downturn or falling commodity prices when you listen to companies with an interest in iron ore mining and infrastructure projects in the Mid West region.

No deterring miners’ Mid West plans

THERE'S not much talk of the global economic downturn or falling commodity prices when you listen to companies with an interest in iron ore mining and infrastructure projects in the Mid West region.

It's still all systems go for most companies, with the notable exception of the region's biggest iron ore miner, Mt Gibson Iron, which has been winding back its growth plans.

That hasn't deterred infrastructure companies Oakajee Port & Rail or Yilgarn Infrastructure, which want to invest up to $3 billion in the region.

Similarly, Gindalbie Metals and Asia Iron Holdings are among at least five companies keen to expand or establish mines in the region.

The plans of all these companies are based on more than normal commercial considerations; they also reflect the involvement of the state government and the strategic goals of their international, mostly Chinese, shareholders.

Whether this translates into action will become a lot clearer over the next two months, when several key decisions are due to be taken.

The federal government is expected to decide by the end of March whether to match the Western Australian government's proposed $339 million investment in common user infrastructure for the Oakajee port project.

Oakajee Port & Rail, jointly owned by Murchison Metals and Japan's Mitsubishi, expects to confirm its plans before then.

In Murchison's latest quarterly report, it said OPR expects to execute a development agreement with the state by February 28, formalising its status as the sole developer of private port infrastructure and associated rail infrastructure for the region.

Despite OPR's confidence, China-backed Yilgarn Infrastructure continues to believe that it will be dealt into the infrastructure game, most likely as developer of the rail links.

Yilgarn boss John Saunders says his group has $3 billion in committed funding from its Chinese backers and is proceeding with engineering and environmental studies for the rail project, on the expectation of winning this work.

The Oakajee port is widely seen as being the key to unlocking the region's full economic potential, but in the meantime two aspiring iron ore miners are planning to use the Geraldton port.

Perth-based Gindalbie Metals has developed a two-stage plan for its Karara project.

A starter mine, with output of 2 million tonnes per annum of hematite ore, is due to start later this year, followed by a much larger project producing 8mtpa of magnetite concentrate.

Hong Kong-based Asia Iron Holdings has been a lot more low-key with its plans. It is aiming to export at least 5mtpa of magnetite ore from its Extension Hill project by 2011 and could expand to more than 10mtpa.

Gindalbie and Asia Iron have one crucial factor in common: they are backed by or owned by Chinese steel makers that need to secure new supplies for their steel mills.

Gindalbie's main backer, Ansteel, recently agreed to invest a further $162 million in the company. This will take its total equity investment in Gindalbie and the Karara project to $573 million.

That's a big spend, but is dwarfed by the $US5 billion ($A7 billion) it has spent on a new steel mill in China that is hungry for ore.

Similarly, Asia Iron's parent company has commenced construction of its Nanjing pellet plant on the Yangtze River, which will process ore from Extension Hill.

These strategic links mean the viability of the mining projects is insulated from commodity market trends.

Gindalbie and Asia Iron will be small producers compared with the big Pilbara miners like BHP Billiton, Rio Tinto and Fortescue Metals Group.

However, their economic impact will be substantial because magnetite projects require a big investment in processing equipment.

Gindalbie has already placed contracts and orders worth $150 million for Karara and expects a further $250 million to be committed in the first half of 2009.

The region's biggest potential lies with large hematite mines proposed by Crosslands Resources, Midwest Corporation and Golden West Resources.

"Current plans are for approximately 70 million tonnes per annum to be exported through Oakajee port within a few years of its commissioning," Geraldton Iron Ore Alliance chief executive Rob Jefferies said last week.

For the optimists, Mt Gibson Iron provides something of a reality check.

It was forced to cut production in the December quarter after customers defaulted on their orders, and has deferred most of its development work in order to preserve cash.

Crucially, the deferrals included its Extension Hill hematite mine, which must proceed before Asia Iron can start mining its magnetite deposit at the same location.

An added complication is that Mt Gibson's Extension Hill mine is one of several projects that does not have environmental approval. Gindalbie's Karara project is in the same boat.

These are some of the realities that need to be overcome before the region becomes home to more big mines.


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