Windimurra reasons don’t add up

CHEAP points have been the order of the day, so far, in the battle of Windimurra. The Treasurer, Eric Ripper, has blamed the Opposition Leader, Colin Barnett, for the State’s involvement in the mothballed vanadium mine and rude things have been said about Roderick Smith, the man who conceived the ill-fated project.

To anyone not directly involved in the Windimurra saga this is probably as far as they want the matter to go.

The $120 million mine and complex processing plant was shut just over a year ago because of low prices for vanadium, a metal used to harden steel.

Victims of the shutdown include sacked staff and the Government’s electricity agency, Western Power, which stands to lose up to $30 million (with $18 million already written off) after helping pay for a gas pipeline and power station to the mine that is located near Mt Magnet.

Briefcase, which first mentioned Windimurra about three weeks ago, thinks it’s time that debate was lifted out of the gutter and a bit of light (and truth) was thrown on the mine and its perceived problems.

Silly name calling does not cut to the fundamentals which include questions about the price of vanadium, who controls the market, the cost structure at Windimurra, the role of its owner, Swiss-controlled Xstrata, whether a new owner could do a better job and the deepest question of all – is this the ugly side of globalisation at work?

The critical facts about Windimurra are these:

p When the development decision was made in early 1998 the price of vanadium was around $US4 a pound;

p By the time it was commissioned in 2000 the price was around $US2 a pound – Asia’s financial flu had struck and the world was awash in vanadium (not that it actually needs much);

p The Australian company behind Windimurra, Precious Metals Australia, was forced to sell its stake to Xstrata in early 2001 (as the vanadium price stayed below $US2/lb), and the mine itself was closed in early 2003 with an immediate effect on the price of vanadium which rose to around $US3/lb

About a year later Xstrata closed a second vanadium mine, the Vantech project in South Africa; and

p As soon as Vantech went offline the price of vanadium rocketed to around $US5/lb – which is where is stays today.

Briefcase understands that the cost of producing vanadium at Windimurra is around $US1.85/lb (say $US2/lb to avoid an argument). At that price level and assuming a $US5/lb price, revenue would be around $US82 million and the annual profit somewhere north of $US40 million.

Xstrata’s spokesman argues that it would be unwise to assume a long-term vanadium price of $US5/lb. There are also problems with the relatively high Australian dollar.

It is on this final point that Briefcase smells a rat. If the Australian dollar is a factor in keeping Windimurra mothballed (or closed permanently) what about the effect on Xstrata’s biggest vanadium mine called Rhovan in South African where the rand has risen even more rapidly than the dollar.

In technical terms, and at current vanadium prices, there is nothing wrong with Windimurra. The issues keeping it shut have everything to do with Xstrata’s other mines, and the way in which a metal like vanadium is bought and sold by global commodity traders such as Swiss-based Glencore, which is Xstrata’s biggest shareholder.

Eric Ripper, rather than turning Windimurra into a political football, should be having a close look at the Glencore/Xstrata relationship, the control they have over the vanadium market, their preference for the Rhovan mine over Windimurra and whether a new owner might see Windimurra in a different light.

Fear of business (which Briefcase hereby dubs "Burkeitis" in honour of the disease passed to this Government by Brian Burke’s business deals in the 1980s) is what appears to be keeping Ripper away from Windimurra.

If that is the case then he is making a huge mistake. To allow Xstrata to permanently close Windimurra and to remove critical components of the plant, would make it impossible for a new owner who is not carrying the baggage of other vanadium plants, and a commodity-trading parent company, to re-open the mine.

In case no-one had noticed, there is a commodities boom under way. China wants every ounce of the key steel-making metals it can. But it does not require too much imagination to see a new owner securing a long-term supply contract at a price which would underwrite the future of Windimurra – and secure Western Power’s $30 million investment.

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THE pecking order in local engineering appears to have changed thanks to GRD Minproc landing 50 per cent of the $1.4 billion Ravensthorpe nickel project. When added to its existing order book, GRD Minproc has more than $1.1 billion worth of work on hand – which is more than double the $519 million order book of arch-rival Clough Ltd.

Making a direct comparison between the two engineers is not easy. Clough is big in traditional civil work plus oil and gas. GRD Minproc has a handful of big mineral processing jobs.

But, for the order-book gap to hit the $500 million mark is an astonishing development which must have Brett Fogarty and his gang at GRD Minproc celebrating and Brian Singleton down at Clough wondering what he has to do to reverse the trend.

Briefcase’s suggestion, available free of charge, is for Clough to lower its artificially high standards, quote more competitively and win more work because without the work, even if it is only marginally profitable, any contracting business can fade away awfully quickly.

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"Few rich men own their property: their property owns them." Robert Ingersoll.