More problems for the troubled Oakajee iron ore port and rail project proposed for the Western Australian Midwest, with one of the two developers revealing money-raising problems.
The project has already hit the headlines with the news last week that cost blowouts had seen China’s Sinosteel place its magnetite iron ore mine on hold because of the higher costs and increased uncertainty.
Murchison asked for trading in its shares to be halted last Thursday.
The trading halt remained in place after the statement to the ASX yesterday.
The shares last traded at 76.5c, but will fall sharply when trading eventually resumes if there is no announcement on funding that guarantees the project.
What investors want to know is if the Oakajee project is still on track for a 2015 start up, three years after its original due date, and over budget.
Murchison Metals, a 50-50 partner in the multi-billion dollar Oakajee (OPR) project, said yesterday morning in the statement to the ASX that it was now in talks with several parties, including Chinese-related investors interested in participating in its development.
"Furthermore, Murchison acknowledges that funding its proportionate share of the equity funding in the projects remains challenging.
"Accordingly, Murchison has already begun to advance discussions with parties interested in investing in OPR, including Chinese-related interests.
"Last week, Sinosteel Midwest Corporation ("SMC") announced that it is deferring development of its Weld Range project.
"However, Murchison notes that SMC has confirmed to OPR that it remains willing to engage in ongoing discussions in relation to the SCAs.
"To this end, SMC is seeking a revised tariff structure/model and further certainty on scheduling, including the date by which the port and rail infrastructure will be delivered.
"Murchison considers that agreement on the SCAs (supply chain agreements) remains vital to the development of its projects and, as such, is committed to finding a solution which is acceptable to all parties," Murchison said in yesterday’s statement.
The Oakajee project has been in the news now for more than four years as a number of mining companies in the Midwest area of WA east of Geraldton seek to open up a long-dormant second iron ore province to the huge Pilbara in the state’s northwest.
The area is based on the lower quality magnetite iron ore, compared to the Pilbara, which is based on the higher quality hematite.
Magnetite requires upgrading to make it suitable for steel-making, which means it costs more to produce.
Therefore it is more sensitive to rising production and infrastructure development costs than the richer Pilbara mines of BHP, Rio and Fortescue which can use the long-established port and rail infrastructure, which can be easily expanded at a lower cost.
The fresh talks could prove a lifeline for the project, co-owned by Japan’s Mitsubishi Corp, which has been struggling under the weight of construction delays, political infighting and cost overruns.
Serious doubts over the viability of Oakajee surfaced last week when key designated user Sinosteel Midwest Corporation put its $2 billion Weld Range project iron ore project on hold, citing uncertainty over when the port and rail would be available for use. (Sinosteel picked up the project when it took over Midwest Corporation in 2008.)
There were suggestions the cost had blown out to $6 billion, but the official figure is claimed to be less than that, around $5.2 billion.
Sinosteel’s withdrawal leaves Gindalbie’s Karara iron project and the Jack Hills mine owned by Murchison and Mitsubishi, as the two remaining customers for Oakajee.
Gindalbie has said it is not relying on Oakajee to produce up to 16 million tonnes of iron ore ar year, though expansion beyond that will require the project’s construction.
Murchison said in March the cost of Oakajee had ballooned to $US5.2 billion from $US4.4 billion, while some analysts put the final construction bill closer to $US6 billion.
In addition to its investments in Crosslands and OPR, Murchison owns the Rocklea iron ore project located in the Pilbara region of Western Australia.
