china will play hardball over oakajee project,

Source:http://www.theaustralian.com.au/business/mining-energy/china-will-play-hardball-over-oakajee-project-barnett-warns/story-e6frg9df-1226196072381



China will play hardball over Oakajee project, Barnett warns
BY: ANDREW BURRELL From: The Australian November 16, 2011 12:00AM



WEST Australian Premier Colin Barnett says China will play "hardball" over saving the $5.9 billion Oakajee port and rail project in the state's Mid-West iron ore region, but he remains hopeful the troubled development will proceed.

Mr Barnett was responding to a report in The Australian yesterday that China's $US400bn ($393bn) sovereign wealth fund, China Investment Corporation, is reviewing whether Beijing should step in to rescue the planned project or walk away from the region altogether.

Comparing the planned development of the Mid-West to the opening up of the Pilbara in the 1960s and the development of the North-West Shelf natural gas venture in the 1980s, Mr Barnett said Oakajee was a high-cost, complex project that was worth pursuing.

"The Chinese aren't simply going to turn up with a truckload of money and say 'off you go'," he said on ABC radio yesterday.

"They are going to place strict requirements on their investment and that's a proper thing for them to be doing."


China's peak economic planning body, the National Development and Reform Commission, has ordered the CIC to conduct due diligence on the Oakajee project.

Sources say it is a possible sign that officials in Beijing are growing increasingly nervous about the project, which has been hit by a series of crippling cost blowouts and major delays.

The CIC may decide that the Mid-West region is unviable due to its high costs and relatively low-grade magnetite ore, and that China should not increase its exposure.

The review comes as troubled Perth miner Murchison Metals attempts to find fresh sources of funding to build the infrastructure after admitting in July that it could not fund its share of the infrastructure.

Mr Barnett said yesterday that he had discussed potential Chinese investment when he visited Beijing in September.

Officials in Beijing were offended when a China-backed consortium lost the tender to build Oakajee to Oakajee Port & Rail, a 50-50 joint venture between Murchison and Japan's Mitsubishi.

"I believe they're going to take a fairly hardball position and I can understand that," Mr Barnett said.

"What I'm trying to do is find a way to bring China into the project in a formal sense.

"I think we're probably getting through that now and I urge them to become involved."

The high-level Chinese review means Oakajee is certain to be further delayed beyond the revised timelines announced earlier this year, which would have allowed construction to begin early next year and operations to start in 2015.

This means the iron ore mines of the Mid-West will now be forced to wait until at least 2016, when prices are expected to have fallen, to begin exporting from a planned new deepwater port at Oakajee, north of Geraldton.

The delays are bad news for Murchison as well as the other miners of the Mid-West, including China's Sinosteel, China-backed Gindalbie Metals and privately owned Asian Iron.

But according to Gindalbie, the planned expansion of its Karara iron ore project in the Mid-West can be accommodated through Geraldton port without the need to access Oakajee.

Gindalbie Metals chairman George Jones has long argued that the infrastructure would not be viable if it was owned by a single group that treated it as a "profit centre".

Instead he wants the infrastructure to act as a service provider in which the mines of the region all have equity stakes.