Premier Colin Barnett’s pet project, a port at Oakajee, has reached a crucial moment in its development.
FEBRUARY has emerged as crunch time for the long-awaited Oakajee Port, with the infrastructure development subject to a three-way tug of war created by competing interests in the project.
Chosen developer Oakajee Port & Rail, which is controlled by Murchison Metals and its Japanese partner Mitsubishi Corp, is struggling to meet deadlines laid down by the state government to ensure the critical infrastructure development proceeds in a timely fashion.
Rival mining groups, backed by the Chinese, are concerned about delays and proposed costs to users, which they say are a threat to the viability of their projects. They want the state to force the restructuring of the project under something of a Plan B that has, apparently, been put to Premier Colin Barnett.
The state government is caught in the middle, trying to appease both sides of this geopolitically challenging argument while also delivering on its own desire to get this massive project well on the way to completion within this electoral cycle.
On the face of it, the immediate issue is OP&R’s request to seek an extension to the March 31 deadline to produce a bankable feasibility study, pushing the timeline out by an expected six months and most likely pushing the project completion past early 2014.
That delay alone has given the state government the leverage it needs to push for a change in OP&R, possibly for more Chinese involvement in the project. The Japanese-linked consortium won the right to develop Oakajee under the previous state Labor government.
However, Mr Barnett, who is understood to be closely involved in all the negotiations, needs to be careful that he doesn’t push too hard. OP&R has significant investment to date and much of that progress, in the form of intellectual property, would take years to rebuild from scratch.
Rival miners complain that the joint ownership by Murchison and Mitsubishi of both OP&R and Crosslands Resources is the problem. Crosslands wants to expand the Jack Hills iron ore project and other miners in the area believe the fate of the port and mine expansion ought to be better separated.
They believe the Jack Hills project is acting as a brake on OP&R. They are also concerned that, under user tariffs for the port and associated rail infrastructure, they will end up subsidising their rival.
“Basically, if you take the emotion out of it, Jack Hills is getting free carriage from the development of the port and that could cost some of the other projects out there,” one close observer to the action said.
“They want a decoupling of the port and rail infrastructure, one is hamstrung by the other.”
This view is in contrast to that of Murchison, which reviewed the port, rail and mine development and announced its commitment in November, in response to speculation that the project could be restructured.
“The recent review by Murchison and Mitsubishi confirmed the pivotal role of the Jack Hills Expansion Project in the development of the port and rail infrastructure,” Murchison said on November 8.
While there are a host of existing and potential players in the region, only a handful such as Crosslands have well-developed medium-term plans. Some of these are more advanced than Crosslands.
Geraldton Iron Ore Alliance CEO Rob Jefferies did not wish to be drawn into the debate among his members, but confirmed that the existing township port could be expanded from 8 million tonnes per annum to 20mtpa to meet the needs of most of the projects that are under way.
But, after that, expansion plans such as those of Gindalbie and development plans such as Asia Iron Holdings’ Extension Hill and Sinosteel’s Weld Range will need the capacity Oakajee can provide. Golden West’s Wiluna West project can use Esperance for its start-up mine but it would prefer Oakajee, which it will need for a planned bigger output.
“We are extremely concerned about delays,” Golden West director John Lester said.
“They are costing us an absolute fortune. The sooner we can get into production the happier we will be.
“We are not comfortable being hostage to something that’s totally out of our control.”
While some dismiss Golden West as a minor league player, Mr Lester’s views appear in line with others outside the Crosslands camp.
Gindalbie chairman George Jones, who is viewed as the natural leader of the Chinese-backed miners, is more guarded.
“We are keen to see Oakajee built,” Mr Jones said. “I am concerned about OP&R’s ability to come up with an acceptable solution for us as a customer and be able to finance the project.
“In the meantime we are happy to work with them and try to resolve it.
“I believe the project can be made viable.”
Exactly what the rival camp wants, beyond a decoupling of the port and the Jack Hills mine projects, is subject to much conjecture.
There are plenty of voices who suggest that OP&R’s ownership ought to change to reflect the composition of the major miners and, in most cases, their Chinese backing. Even the premier has suggested this.
One suggestion is to split the ownership up to five ways, and sell off half the infrastructure in a public float, either before or after it is built.
“We all want a share to help make it happen,” said one player.
OP&R CEO John Langoulant is unfazed by all the conjecture.
Firstly, Mr Langoulant has stuck to the line that the consortium behind the port and the mine is solid. He also believes the delays are minimal given the size of the project – understood to be $4.4 billion for the port alone.
“I think we are probably not far off what is the natural time frame,” Mr Langoulant said.
The OP&R chief also dismisses rumours of negotiations over the project’s ownership, describing much of the conjecture as skirmishing.
“We hear those rumours from other miners,” he said.
“I have yet to see a proposal. I am sure they would like some equity. If they are keen they should put up a proposal.”
Despite speculation that Mitsubishi wants out of the project because the nature of the Jack Hills resource changed from haematite to magnetite, its spokesman in Perth, Suburo Takeuchi, confirmed the Japanese group remained committed to both projects, which have a combined value north of $11 billion.
Mr Takeuchi said Mitubishi’s contractual obligations lay with Murchison and would remain so unless its partner changed to someone else.
Much of the focus of attention from other miners is on the intentions of Murchison, which, at a market capitalisation of under $700 million, is an unlikely central player in a major infrastructure project. Some believe the junior miner would be happy to be bought out at the right price. Then again, most in business would take that approach.
Clearly the market likes whatever stories they have heard about Murchison in recent weeks.
After news about its revised project schedules was released in early November, Murchison shares tumbled from around $1.50 per share to close as low as $1.16 each in the weeks following.
Since early this year, they have regained ground, prompting a speeding ticket from the ASX last week.