Murchison declares Oakajee viable

Murchison Metals says feasibility studies just released vindicate resources spent on its OPR and Crosslands joint venture projects, but a hard slog ahead

Murchison declares Oakajee viable
Murchison declares Oakajee viable

By Anna Game-Lopata | July 4, 2011

Murchison Metals says feasibility studiesit has just delivered
vindicate the time and money spent on its interconnected joint venture projects Crosslands and Oakajee Port and Rail (OPR), but there's still a lot of work to be done.

Chief Operating Officer Trevor Matthews says the feasibility studies indicate the commercial, technical and operational viability of both projects, assuming the companies can reach agreement with potential customers.

"The results reflect nearly four years of intensive work and over $400 million of expenditure by the respective project teams and mark a major milestone toward project execution," Matthews says.

"The delivery of these studies by Crosslands and OPR represents a significant
achievement in the ongoing development of the mid-west as a major iron ore producing region."

The OPR project comprises an integrated new railway and port located in the upper mid-west region of Western Australia.

Once complete, the development will service regional iron ore miners exporting bulk iron ore products, including Murchison’sJack Hills Project
in a 50 percent joint venture with

At project completion in 2015, the expectation is for Oakajee Port to handle a throughput of 42 million wet tonnes per annum (Mwtpa) with the likely requirement for an expansion to accommodate 45 Mwtpa.

According to Matthews, OPR’s feasibility study is based on an average throughput of $5.45 per wet tonne at a cost of $5.94 billion, including $508 million in construction costs.

An estimated $723 million will be required for port common use infrastructure facilities such as the breakwater, turning channel and navigation aids. This incorporates rolling stock priced at $273 million.

Since its initial budget estimate of $5.24 billion in November 2010, the project’s direct capital costs have
spiralled 3.6 percent to $5.43 billion.

At this stage, Murchison says OPR is yet to establish binding agreements for the provision of infrastructure services and is still working toward finalising the terms of its contractual arrangements with the State Government.

"The study has yet to receive formal sign-off from the Management Committee of OPR, and remains subject to detailed review by Murchison and 50 percent joint venture partner Mitsubishi," Matthews says.

More critically, the success of the OPR project depends on the details of long term, take or pay contracts negotiated with key potential customers including Crosslands, Sinosteel Midwest Corporation and Karara Mining.

OPR has not yet reached agreement with any of these parties on the mutually beneficial commercial terms it describes as "Supply Chain Agreements".

The situation was confounded last week when Sinosteel decided to suspend works at its Weld Range iron ore project, which would have represented approximately two thirds of OPR’s business.

Murchison says Sinosteel has confirmed it remains willing to engage in ongoing discussions in relation to the supply chain agreements necessary for the project to move ahead.

"To this end, Sinosteel is seeking a revised tariff structure and further certainty on scheduling, including the date by which the port and rail infrastructure will be delivered," Matthews says.

"Murchison fully supports re-engagement with Siniosteel on this basis with respect to the Weld Range project, and notes the ongoing willingness to engage by all parties – OPR, Crosslands and Karara Mining."

While the supply chain agreement process between OPR and its potential foundation customers is incomplete, Murchison says it expects that all parties will ultimately reach agreement around commercial arrangements that are required to unlock the value of all of the projects in the region.

"Approvals for the project are well advanced and we are working on the assumption the project go ahead will be in the March quarter 2012 with first shipping through Oakajee targeted for 2015," Matthew says.

"Murchison continues to review its funding options and opportunities.

"Following the release of the feasibility studies, Murchison will continue with a strategic review that was commenced to maximise shareholder value."

"Murchison looks forward to progressing both projects to the next stage of development."

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