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Posts Tagged ‘rail’

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

Guinea: Mining Fight Shows Pressure on Multinationals

January 28, 2011 Comments off

“Alpha Condé, the new president of Guinea, pledges to do what none of his predecessors have: Harness vast iron-ore reserves contained in the Simandou mountain chain to give the West African country one of the continent’s most prosperous economies.

To succeed where others have failed, Mr. Condé is revisiting an existing Simandou mining contract with Anglo-Australian miner Rio Tinto, as well as other pacts signed by his predecessors. Foreign investors, no matter how big, will have to follow rules or leave Guinea, he says.

In Guinea, the Simandou contracts are just some of several that are under review in disputes with companies from Russia, China and the U.S. And the outcome of the Simandou dispute is likely to rattle at least one powerful international investor: either Rio Tinto or rival Vale SA of Brazil. Aluminum Corporation of China also has a dog in the fight.”

Source: Wall Street Journal, January 27 2011

Observations:

  • Rio Tinto has teamed up with Chinalco to develop its part of the Simandou deposit (although it is still unclear which part it is exactly entitled to). The Chinese pay $1.35bln for infrastructure development, giving it the right to buy the ore from Rio Tinto.
  • The Guinean government is keeping a close watch on the development plans, pressuring the companies to file plans and start investments, threatening to revoke licenses granted in earlier stages.

Implications:

  • The export of the Simandou iron ore is an interesting case of shared responsibility of corporates and government in infrastructure development. The shortest route to the sea would be a direct link through Liberia, but the infrastructure development to ship the ore through a Guinean port is one of the main benefits the Guinean government could achieve from the involvement of the foreign companies. The government will therefore have to find a balance in pressuring the companies to invest and investing itself to convince the companies to skip the Liberia-alternative.
  • Vale smartly managed its transaction of BSG’s share of the Simandou asset by making 80% of the $2.5bln payment conditional on achievement of specific milestones, limiting the country risk it is exposed to. These types of conditional deals are likely to be the way to move forward in order to limit risk in many countries that are struggling to become more stable and attract investment.

©2011 | Wilfred Visser | thebusinessofmining.com

Miners withdraw bid for QR coal network

September 10, 2010 Comments off

“Treasurer Andrew Fraser says the State Government will go ahead with the public float of the Queensland Rail (QR) coal business after a consortium of mining companies pulled out of negotiations. He says the State Government had given the miners until Friday to make a binding offer.

The consortium has released a statement saying it could not satisfy its own requirements or those of the Government. Mr Fraser says the consortium contacted him today and did not ask for an extension. ‘It’s been a genuine effort but agreement hasn’t been able to be reached,’ he said. “

Source: ABC News, September 9, 2010

Observations:

  • A consortium of miners made a $4bln bid in May in order to gain control over the rail network on which they depend to transport their coal to the ports./li>
  • The withdrawal of the bid comes as a surprise, as many analysts did see the bid as superior to an IPO. Expected return was approx. 60% higher than IPO, but it would leave the government with a part of the company that is hard to sell.

Implications:

  • As the reason of the withdrawal has not been specified, this might be a method of the mining consortium to pressure the government into accepting their bid. In this case, a deal is likely to be announced within a couple of weeks.
  • Another explanation of the withdrawal might be that one or more of the miners in the consortium have changed their strategic plans, favouring dealing with a public company rather than an asset owned by a consortium of 13 competitors.

©2010 | Wilfred Visser | thebusinessofmining.com

Australian miners bid for coal rail network

May 31, 2010 Comments off

“A consortium representing many of the world’s biggest iron ore and coal miners has made a pre-emptive strike to buy the Australian state of Queensland’s coal rail freight network with a fully funded bid worth A$4.9bn (US$4bn).

The 13-member consortium – which includes BHP Billiton, Rio Tinto, Anglo American, Brazil’s Vale and Peabody Energy of the US – is trying to head off the state government’s plans for a 2010 initial public offering of QR National.

QR National – a business that includes coal and other freight networks, rolling stock, and a coal logistics business – plans to raise between A$2bn to A$3bn in a float that would give it a market value of about A$7bn.”

Source: Financial Times, May 26 2010

Observations:

  • Many parties see the offer as the best option for the government. Queensland Resource Council says: “With uncertainty hanging over the world’s stock markets, the State has been given a gilt-edged opportunity to reconfigure its QR National asset sale plans while underpinning the future growth of its leading export industry.”
  • The offer of the consortium gives the government a 60%+ premium vs. an IPO. However, they will be left with a part of the company that will be harder to operate and sell.

Implications:

  • With this “offer the government can’t reject” the miners try to secure stable and cheap transportation from the mines to the ports. Problems might surface when new investments that specifically favour one of the consortium members need to be made to the network.
  • The offer can be seen as part of the trend of downward vertical integration in the mining industry. Vale currently is the best example of a miner with large assets in transportation (Brazilian rail network). Potentially, if shipping tariffs become a bottleneck, miners will start investing in seaborne bulk transport as well.