Body blow for Oakajee Port and Rail

Date: 24.06.2011

The Oakajee Port and Rail project suffers another setback as Chinese iron ore customer Sinosteel Midwest Corporation withdraws

By Anna Game-Lopata | June 24, 2011

The Oakajee Port and Rail (OPR)
project has suffered another setback with the withdrawal of key Chinese iron ore customer Sinosteel Midwest Corporation.

OPR joint venture partner Murchison Metals was yesterday granted a stock trading halt to consider the implications of Sinosteel’s announcement
that it
had
shut down work at its Weld Range operation.

As an OPR foundation member, Sinosteel’s iron ore business was critical to the viability of the proposed deep water port and associated rail infrastructure project north of Geraldton, in Western Australia.

The $2 billion Weld Range iron ore mine would have required one third of the proposed Oakajee port's capacity.

The news follows Murchison’s March revelation that the cost of the project had blown out by a further $1 billion, which is believed to be the major reason Sinosteel reconsidered its involvement, along with delays costing $100 million a year.

Oakajee was originally due for completion by 2012 but
the date
has now stretched out to 2015.

One of China's largest iron ore traders, Sinosteel hasn’t completely given up on the project, but says the mine would remain closed until uncertainty around the Oakajee development was resolved.

"We are certainly not closing the door on Weld Range," says Sinosteel Midwest Corporation chief operating officer Julian Mizera.

"However we must make the right business decisions in order to protect our assets and ensure a realistic future for our organisation."

Earlier in June SCR reported Murchison Metals itself has not ruled out divesting of all or part of its interests in OPR as a way to keep the project afloat.

There have also been reports that Mitsubishi, Murchison's 50 percent joint venture partner,
intended to pull out of the deal.

Much of the WA mid-west emerging magnetite iron ore export industry is reliant on the development going ahead, so losing such a major customer could be a serious roadblock.

So far the federal and state governments have both sunk significant investments into the OPR project, the total cost of which is now understood to be $5.2 billion.

In April The WA government committed $339 million to build the bulk of the port component of the OPR project, a figure matched by the federal government.

However, WA premier Colin Barnett, who has bought land at Oakajee on behalf of the state, says he is still confident the project will go ahead.

He told reporters Sinosteel’s decision would simply bring the project to a "crunch"
putting extra pressure on the partners to get the development underway in a workable manner.

Murchison Metals is expected to make a further announcement about the future of OPR on Monday.