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Posts Tagged ‘Oakajee’

Mining Week 52/’11: Chinese investment welcome in Australia

December 31, 2011 1 comment

Top Stories of the Week:

  • Australia solicits Chinese infrastructure investment
    • The government of Western Australia is trying to speed up the development of port and rail facilities of the Mid West region’s Oakajee port by stripping the Mitsubishi/Murchison combination of exclusive development rights and inviting Chinese parties to step in. 8 of the 14 projects in development in the region have Chinese investors.
    • Sources: Wall Street Journal; Government statement; Murchison Metals statement
  • Yanzhou teams up with Gloucester coal
  • Anglo and Codelco fight for Minas Sur stake
    • Anglo American launched a range of claims in Chilean court trying to prevent Codelco from being awarded the right to buy a full 49% of the Minas Sur assets. The scope of the option for Codelco to buy 49% has been unclear since Anglo sold a 24.5% stake to Mitsubishi. In response to Anglo’s claims Codelco restated its intention to acquire 49% of the full project.
    • Sources: Financial Times 1; Financial Times 2; Anglo American press release

Trends & Implications:

  • As expected Chinese investments have proven to be a key driver of M&A activity in the mining industry in 2011. It is noteworthy that many Chinese firms are using a foreign based subsidiary or team up with a Western firm to do foreign investments. This structure holds 2 main benefits for the Chinese investors: they obtain an experienced western staff with knowledge of the way of doing business in the target countries; and they are viewed much more favorably by regulators when trying to execute deals.
  • The fight of Anglo American and Codelco over Minas Sur appears to become a long term court fight. The longer this court fight stretches, the more inclined Anglo American will be to find a compromising deal, as the uncertainty about the ownership structure will delay all investment decisions for the company in the mining region.

©2011 | Wilfred Visser | thebusinessofmining.com

Sinosteel Freezes $2 Billion Australian Iron Ore Project

June 23, 2011 Comments off

“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.”

Source: Wall Street Journal, June 23 2011

Observations:

  • 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.

Implications:

  • 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