Sinosteel Freezes $2 Billion Australian Iron Ore Project
“Sinosteel Midwest Corp. said Thursday it had put one of China’s biggest overseas mining projects on hold due to uncertainty over the more than $5 billion Australian dollar (US$5.3 billion) Oakajee port and rail development in Western Australia state. The halt to Sinosteel’s A$2 billion Weld Range iron ore mine, originally slated to start production in 18 months, is a sign of the stresses in Australia’s energy and mining sectors sparked by an unprecedented resources boom, and a further blow to a project hit with delays and cost overruns in recent months.
‘Sinosteel Midwest Corp. has made no secret of the fact that continuing delays to the Oakajee port and rail project would have a significant impact on our operations—in fact to the tune of A$100 million per year,’ said Julian Mizera, the company’s chief operating officer. ‘Unfortunately, we have now had to draw a line in the sand.’ Brokers believe the Oakajee port and railway, being developed by a 50-50 joint venture of Mitsubishi Corp. and Murchison Metals Ltd., can’t be built without Sinosteel agreeing to send its iron ore over the network.”
- The 15Mtpa Weld Range project is one of the key projects to turn the Midwest of Western Australia into a significant iron ore producing and exporting region.
- Shipping the planned production of the Weld Range mine would account for some 15% of the total capacity of the railway. Other potential customers of the Oakajee project would be Karara Mining, Asian Iron Ore Holdings, Crosslands resources, Gindalbie Metals, and Golden West resources.
- It is unlikely Sinosteel really will abandon the project permanently. However, by stepping back and leaving the development decisions to the other parties the company hopes get things moving. The government, which is a big sponsor of the project, might get involved to ensure the project will proceed.
- Sinosteel mentions a $100mln cost for each year delay in the project. Most likely this number is derived from discounted cash flow analysis, decreasing the current value of the project upon delay, though the actual cash flow of the project once it has started is unchanged.
©2011 | Wilfred Visser | thebusinessofmining.com
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