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Posts Tagged ‘Sinosteel’

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

Rio Tinto strengthens its position in China

December 6, 2010 1 comment

“Rio Tinto and Chinalco today signed a non binding Memorandum of Understanding (MoU) to establish a landmark exploration joint venture (JV) in China. The JV will explore mainland China for world-class mineral deposits and is expected to come into operation in the first half of next year. It is intended that between three and five large area exploration projects will be selected for initial focus by the JV, with the potential for additional regions to be added at a later date. Chinalco will hold a 51 per cent interest in the JV and Rio Tinto will hold a 49 per cent interest.”

Source: Rio Tinto press release, December 3 2010

“My second idea revolves around assisting China in the search for world class mineral resources in its own backyard within China. In saying this, let me stress that I recognise China has considerable expertise in this area and that a lot of exploration work is being undertaken in China and that new resources are being discovered here. …

There is no “magic wand” in mineral exploration. Success requires highly experienced people, rich databases, a deep understanding of conceptual orebody models, robust research and development teams, appropriate technology, and good management, to name a few. We believe we can bring that expertise and know-how to bear in helping China to find major orebodies on its home soil. I remain happy to discuss these ideas further.”

Source: Albanese presentation at Melbourne Mining Club Shanghai, August 19 2010

Observations:

  • Rio Tinto will work with Chinalco in an exploration Joint Venture in which Rio Tinto will hold 49% of the shares. The CEO of the JV will be appointed by Rio Tinto.
  • In August of this year mr. Albanese informally invited the Chinese to search for options in which the company could work together.
  • While in Beijing, mr. Albanase also signed an extension of the agreement with Sinosteel to expand the Channar mine in the Pilbara region in Western Australia.

Implications:

  • Rio Tinto has been working hard to establish strong ties with Chinese government and companies. With Chinalco as the largest shareholder it holds a good position. However, the refusal to give Chinalco an even larger share and the conviction of three employees for corruption in China did slow down the process for some time. Mr. Albanese has managed well to regain the momentum of discussion.
  • BHP Billiton has not yet managed to establish a foothold in the Chinese industry. Whether the company deems the political risk in the country too high, the company is scared away by the operational risk of developing infrastructure (most interesting exploration prospects in China are located far in the inland, making transportation to the markets near the coast challenging), or the company simply did not manage to establish the right connections yet is not clear.

©2010 | Wilfred Visser | BUJEZKKNXD3Z | thebusinessofmining.com