Australia Looks to China for Iron Ore Project...

Australia Looks to China for Iron Ore Project

28.12.2011

SYDNEY—Western Australia invited China to invest in a A$5.94 billion (US$6 billion) port and rail project that aims to open up a new iron ore province in the state's Mid West after Wednesday stripping a Mitsubishi Corp.-led venture of exclusive development rights.

The state government wants to unlock the potential of the largely untapped region and transform it into Western Australia's second major iron ore output hub behind the Pilbara, which accounts for nearly 40% of all trade in the key steelmaking ingredient by sea.

Much of the iron ore from Western Australia is shipped to China, the world's largest steel producer by output. China also relies on Australia for its supply of coking coal, which is used in blast furnaces to make steel.

Western Australia has become frustrated by the slow progress in moving the Oakajee port and rail project into construction, with delays driven largely by Murchison Metals Ltd.'s inability to fund its share of the project. Murchison agreed this month to sell its 50% stake to Japan's Mitsubishi, which will now wholly own the venture.

Wednesday's move to strip the Mitsubishi venture of exclusive rights to build the project means the Western Australia state government can now seek alternative investors, including from China, to construct a deepwater port and 570-kilometer rail line.

In a statement, Western Australian Premier Colin Barnett said the government will keep working with Oakajee as a proponent and is encouraged by Mitsubishi's efforts to find a partner.

But he added it will now consider a broader range of options.

"The government will continue to encourage Chinese participation," Mr. Barnett said. "This is vital to the project because Chinese companies have major interests in Mid West iron projects and China is likely to be the biggest customer for the region's iron ore."

The Oakajee project, comprising a 45 million-metric-ton-a-year port near Geraldton and a railway built to a capacity of 100 million tons a year, could eventually increase iron ore exported into the global seaborne market by around 10% over current levels.

Even though a Chinese company could have invested in Oakajee directly, taking away exclusive rights would create new opportunities for Chinese involvement and could help lower development costs, Mr. Barnett said.

Of the 14 iron ore projects currently in development or planned in the Mid West region, at least eight have significant Chinese interest.

These include Chinese steelmaker Ansteel's iron ore project with Gindalbie Metals Ltd., and Sinosteel Midwest Corp.'s Weld Range project. Sinosteel is a division of China's state-owned Sinosteel Corp.

Separately, Mitsubishi on Wednesday received Foreign Investment Review Board approval for the Murchison deal. Murchison shareholders will vote on the transaction in February.