Ports progress in stages points to an oresome outcome

Huge potential could be added to WA’s export terminals capacity over the next decade.

WHEN it comes to port developments in Western Australia, the numbers are staggering.

Already, the state’s export capacity for minerals is around 460 million tonnes per annum, a number that would be hard to beat by any nation let alone a single province such as the Pilbara, from where the bulk of that huge volume is derived.

A study by WA Business News shows the state could be headed to quadrupling that capacity in the coming decade to more than 2 billion tonnes per annum. 

The next and biggest stage of development is through to around 2018, where projects either under way, committed or being seriously looked at could add more than 650mtpa of capacity, taking the state’s annual export ability to more than 1.1btpa.

That phase includes the approved and near-approved expansion of Cape Lambert to 183mtpa, the creation of 100mtpa at Anketell, the addition of about 250mtpa in Port Hedland’s inner harbour and 100mtpa in its outer harbour, as well as many smaller projects.

Much of this, of course, is dependent on iron ore prices in the near future.

Another phase, which might be more wishful thinking, puts Cape Lambert at 353mtpa capacity, Anketell at 400mtpa and sees a further 300mtpa added to Port Hedland’s outer harbour, with the inner harbour stretched to 496mtpa.

And that is just the tonnages involved. Before they become reality, even more eye-popping numbers in terms of investment dollars have to be committed. 

While it is difficult to separate the shipping and coastal logistics infrastructure from the rail component that often accompanies such proposals, it is nevertheless a very expensive business, which is not getting any cheaper.

Rio Tinto, for instance, last year estimated it would cost it and its partners approximately $14.8 billion to add 113 million tonnes of annual capacity to reach 333mtpa by 2015.

The increase in mine capacity was estimated at $6.4 billion, or around 43 per cent of the total bill.

Apart from rail stock and railway line improvements, the rest of the cost was linked to port expansions, ship-loading plant and power and town infrastructure, which would also have a heavy leaning to port-related needs.

Just adding 10mtpa to the existing Dampier port to take its iron ore export capacity to 150mtpa was expected to cost more than $320 million. 

At $32 per additional tonne of annual capacity, that is relatively cheap when iron is selling at, for instance, $150 per tonne. It pays itself off in just two and a half months of operations.

Over at BHP Billiton, the most concrete move towards the development of the long-talked about outer harbour at Port Hedland – effectively a series of berths 4km out to sea – was made in February when it and its partners said they had committed nearly $900 million to increasing export capacity by 100mtpa.

Of course, less than $1 billion would look cheap for an extra 100mtpa. However, the funds approved were simply to enable the consortium, which includes minority partners Itochu Minerals and Energy of Australia, Mitsui-Itochu Iron and Mitsui Iron Ore Corporation, to progress feasibility studies and the procurement of long lead-time items. It will also allow for dredging to begin, subject to the regulatory approvals.

The overall cost of the project is estimated to be somewhere up to $20 billion, or $200 per additional tonne of annual capacity added, a big sum to swallow even for BHP Billiton, which is also expected to sign off in the short-term on other big licks of capital for a major potash project in Canada and its Olympic Dam copper and uranium project in South Australia.

BHP Billiton said the outer harbour project was expected to be reviewed for full approval in the fourth quarter of this calendar year and included an option to expand by a further 100 million tonnes a year.

The first stage outer harbour development at Port Hedland is proposed to include a 4km jetty, a four-berth wharf, 32km of dredged departure channel and infrastructure such as stockyards and a rail spur.

BHP Billiton’s requirement to develop alternatives to the current Port Hedland inner harbour has long-been known. The constraints at Port Hedland were seen as one of the biggest reasons for the attempted merger of BHP Billiton and Rio Tinto’s Pilbara iron ore operations a couple of years ago.

The increasing activity by other miners means BHP Billiton no longer can call the port its exclusive domain. 

With tricky tides and numerous berths being developed further into the harbour, the company knows there are limits. It has current capacity at about 155mtpa and is pushing that out to at least 220mtpa. It hopes it may even squeeze 240mtpa with debottlenecking processes. 

Fortescue Metals Group has the right to expand its inner harbour capacity to 120mtpa, making it the next biggest player as the existing port strains to reach a theoretical 495mtpa, with additional miners such as the Hancock Prospecting-led Roy Hill project, Atlas Iron, Brockman and others muscling into the action. 

Those other parties are expected to have 75mtpa of capacity operating by 2017, with investment decisions well before that. Ultimately, they are expected to want 125mtpa between them. 

FMG has already recognised that its very public plan to reach 155mtpa leaves it short of port space. That is why it is hunting around for alternatives. 

More recently, FMG surprised the market by again raising the possibility of getting involved in the Port Hedland outer harbour. 

FMG, along with Hancock Prospecting, has long been mooted as a potential developer of capacity in the outer harbour, but its recent focus on Anketell Point had suggested a shift in options. Observers believe BHP Billiton’s decision to invest in the final stages of feasibility are likely to make the outer harbour a cheaper option for other players who might want to participate in the building of up to eight berths, capable of loading 200mtpa, next to the mining giant’s similar-sized proposal.

To some, the outer harbour, which merely bolts on to significant amounts of existing land-based infrastructure, is easier than trying greenfield developments such as Anketell, situated to the western side of Cape Lambert. 

“BHP have made it clear that they want to develop the outer harbour on their own but there’s obviously opportunities to share infrastructure in terms of the channels in the future,” FMG operations director Peter Meurs reportedly said last month. 

Anketell

FMG is already a founding partner in the group of companies studying the proposed Anketell port site near Cape Lambert. However, last year it expressed unease with the planning for stage one development that would provide for up to 70mtpa. 

That was led by a consortium involving Aquila Resources, which has plans for an initial 30mtpa mining project that would need Anketell. 

Aquila was concerned that FMG’s demands (for the planning of a much bigger port at an earlier stage of the development) may derail the current process and set back the infrastructure development.

That war of words appears to have abated. Last year, some form of compromise appears to have been reached behind the scenes. 

In November WA Business News reported that the Department of State Development had endorsed changes to Aquila’s port development plan to allow 100mtpa as a first stage, with Aquila seeking 50mtpa of that.

The state government may have given its blessing to increasing the first stage capacity but the bickering simply underlined the possibility of another drawn out fight between miners over the infrastructure, like that which accompanied the now halted Mid West port development of Oakajee.

Last year, transport minister Troy Buswell made the point that with iron ore the lack of port infrastructure was different from coal, which had seen dozens of ships parked up and down the Queensland and NSW coasts waiting to get into harbour. 

With iron ore, the queue tends to be in the desert, where orebodies sit in the ground waiting for the ports to be built.

Embarrassed by the debacle in the Mid West, the WA government has clearly stated it does not want the future of Anketell to be tied to the development of any one mine and risk repeating the mistakes made at Oakajee.

Amid mounting speculation a third-party infrastructure provider was being lined up to play a role in developing the Anketell port (see story page 17), WA Premier Colin Barnett said he would make a decision on the port by the end of the year. The fact that he has not yet done so, does not mean it won’t pan out that way.

Aquila Resources, interestingly, has recently exited some significant coal assets so that it can focus on iron ore. 

Earlier this month, it said it had secured nearly all of the funding required for the development of its West Pilbara iron ore project, after selling its 50 per cent stake in the Isaac Plains coal mine in Queensland’s Bowen Basin to Japan’s Sumitomo Corporation for $430 million. That could include contracting out elements of its infrastructure – such as the rail network and port to others.

While there is the possibility that Anketell might not happen in the near future, near neighbour Cape Lambert is full steam ahead.

Cape Lambert

Rio Tinto has already maxed out its Dampier capacity at about 150mtpa and is ramping up Cape Lambert from existing 83mtpa to 183mtpa. Of that it claims it has approved growth to 133mtpa and expects a final investment decision on a further 50mtpa soon.

But that cautious language belies a wider expectation that this site, which Rio Tinto iron ore chief Sam Walsh has described as the jewel in the crown, will export a lot more ore. 

In presentations last year, the company suggested it had options to expand its Pilbara port capacity to 433mtpa, which suggests Cape Lambert would reach 283mtpa.

But as recently as last week, Rio Tinto expanded that possibility by suggesting Cape Lambert could be even bigger.

The iron ore giant revealed a $300 million-plus investment in infrastructure in Wickham, the town situated close to Cape Lambert, to enable the construction of new accommodation units and a significant improvement in community facilities.

That includes more than 200 houses, 200 high-quality motel-style accommodation units, two new modern buildings (a 420-seat cafeteria with gym and 1,600-square metre training and administration centre) and typical town infrastructure, such as power, sewerage and water. A $22 million sport and recreation centre already under way was not included in the tally. 

“The upgrade is supporting the expansion of annual production capacity to 283mtpa, with the proposed expansion to 353mtpa in the final studies phase,” the company said last week, confirming a number that has long-been thought a possibility at the site.

Southern half of the state

The numbers are not nearly as big in the south, where smaller deposits must fight with other commodities such as grain to get access to ports that are limited by geography and more established urbanisation.

A good example is Geraldton, in the Mid West, which is exporting 6 to 7mtpa of iron ore and mineral sands (mainly Mt Gibson Iron and Iluka), as well as importing some mineral sands. If everyone did what they said they hoped to, Geraldton would be expected to reach somewhere between 23 and 25mtpa. That is in theory only.

The Karara joint venture plans to export around 10mtpa from the port, which would stretch it to around 17mtpa, a point that insiders suggest is really at capacity because of the harbour’s size and a weather-induced impediment to growth called a ‘long-period wave’, which means the port has to be closed at regular intervals.

That is why nearby Oakajee, a port which was to be 45mtpa in its first stage, was needed. 

The hold-up at Oakajee since its partners could not get financial backing is a setback for the mining community in the area. 

While Japanese giant Mitsubishi has bought out its equal partner, Murchison Metals, Oakajee’s local leader, John Langoulant, is seeking Chinese money to restart the project. Mr Langoulant, a constant traveller to China right now, is confident, but world events are making his task harder.

Another southern ore port undergoing major expansion is Esperance.

In January, the state government committed to a staged expansion that would nearly double Esperance from 11mtpa to 20mtpa. The state is already spending $120 million with John Holland to upgrade access points for road and rail and hoped to make Esperance something of a smaller trial for its move to have private sector involvement in the expansion project.

With Cliffs Natural Resources already committed to expanding its exports through the port from 8mtpa to 11.5mtpa, plus a host of other minerals groups wanting to use Esperance, this is just another of a long line of port developments big and small that will boost WA’s capacity.