roy hill 'amounts to suicide', page-69

http://www.theaustralian.com.au/business/mining-energy/gina-rineharts-10bn-roy-hill-mine-faces-more-delays/story-e6frg9df-1226719600331

Gina Rinehart's $10bn Roy Hill mine faces more delays
ANDREW BURRELL THE AUSTRALIAN SEPTEMBER 16, 2013 12:00AM
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GINA Rinehart's $10 billion Roy Hill iron ore project is facing further delays of at least six months and is more likely to go ahead if the joint venture partners sell down more equity, according to an analysis of the project by JPMorgan.

Roy Hill Holdings, which is 70 per cent-owned by Mrs Rinehart's Hancock Prospecting, is seeking to arrange $4bn in funding from export credit agencies and another $3bn from commercial banks in one of the biggest debt-raisings ever undertaken in the mining industry.

The project has emerged as a potential saviour for scores of contractors and suppliers hit hard by the recent mining slowdown.

It involves a new mine capable of producing 55 million tonnes per annum of iron ore, a 344km railway and a new port at Port Hedland.

Roy Hill says it is aiming to complete the financing by the end of the year and to begin production by September 2015

But in a note to clients, JPMorgan analysts said the project's delays in obtaining financing meant first production was not likely to occur until mid-2016 and the mine's production run rate of 55mtpa would not be reached until late 2017. They said the project would generate about $US1.1bn ($1.2bn) of free cashflow after tax. The investment bank also said the project may need a fresh equity injection to proceed given the size of its funding needs.

Apart from Hancock's majority stake, the rest of Roy Hill is owned by South Korea's Posco, Japan's Marubeni and Taiwan's China Steel Corporation.

Hancock sold down 30 per cent of the project last year.

The partners are not required to contribute more equity to Roy Hill until the $7bn in debt has been secured.

"Based on the size of the debt facility required, at a time when the consensus outlook for iron ore prices is for a structural decline, we believe the project is more likely to get up and running if the JV partners sell down more equity," JPMorgan said.

The analysts said they expected Roy Hill would sit in the middle of the cost curve for iron ore projects, with cash costs of about $US37 per tonne. They said Roy Hill could add 7 per cent to Australian iron ore supply and they expected it would displace high-cost domestic Chinese production.

ANDREW BURRELL