looking strong on opening, page-10

China powers WA’s junior iron ore sector

27th August 2007, 9:00 WST



Handing down a record $16.7 billion profit last week, outgoing BHP boss Chip Goodyear was adamant that the recent US market jitters meant little for the mining giant because it was “business as usual” in the key markets of China and India.

Against that backdrop, a handful of less prominent developments during the week suggested that optimism extends all the way to the junior iron ore sector.

The first event was a landmark $750 million funding pledge by a group of Chinese steel mills and construction groups for Yilgarn Infrastructure’s proposed $2 billion plan for a multi-user iron ore railway and deepwater port in WA’s Mid-West.

Unlike many nervous local investors, looking back in fear at the volatility on world equity markets, the deal showed the Chinese are making their investment plans based on the outlook for the years and decades ahead.

The Yilgarn deal was followed on Wednesday when Pilbara magnetite hopeful Australasian Resources said Chinese steel giant Shougang opened a Perth office and dedicated 12 staff to work on its billion-tonne Balmoral South magnetite project at Cape Preston.

Shougang farmed into the project earlier this year, spending $56 million on Australasian shares upfront and offering an interest free loan to develop the $2.5 billion project in return for a half stake and the rights to buy all magnetite produced at the venture.

The office has been opened ahead of the arrival in Perth next Monday of Chinese President Hu Jintao on an official visit to the State that is supplying China with a growing proportion of the building blocks of its economy.

More significantly, two of Shougang’s most senior executives and four senior officials from Beijing’s massive Export-Import Bank also toured the Balmoral South site on Thursday. EXIM Bank is Beijing’s key conduit for funding overseas resources projects that China believes can help it secure the raw materials it will need for the next few decades.

It has already provided a conditional $1.5 billion funding offer to Yilgarn Infrastructure in the Mid-West and is now weighing up funding support for Shougang at Balmoral South.

It is no coincidence the project is an extension of the same massive orebody now being developed by Beijing-backed Citic Pacific, which has the rights to mine six billion tonnes of magnetite at the site under deals struck with Clive Palmer’s Mineralogy last year.

The final event was confirmation from fellow Pilbara magnetite hopeful Cape Lambert Iron on Thursday that Chinese steel tyco on Liguo Ding would be making his first $US57.5 million ($70.1 million) downpayment on the Cape Lambert project by the close of business on Friday. The payment is the first of three owing under Mr Ding’s agreement to buy a direct 70 per cent stake in the project for $US192.5 million.

It’s noteworthy the investment is being made by Mr Ding personally, and not on behalf of his Singapore-listed conglomerate Delong Holdings. That is a pretty big personal statement of confidence in the long term outlook for iron and steel.

The downpayment is now due because Cape Lambert this month fulfilled a key condition of the sales agreement when independent consultants confirmed a minimum indicated resource of 300 million tonnes at the project. The resource lies within an indicated and inferred resource of 793 million tonnes in the so-called Central Target Area, which in turn accounts for only a portion of the project’s total resource of 2.5 billion tonnes.

Furthermore, Cape Lambert is in the midst of a 33,000m drilling program to add more tonnes to the deposit.

WA’s yuan-funded junior iron ore boom should gather even more speed in the next few weeks, when steel giant AnSteel and Gindalbie Metals complete final feasibility studies for the $1.5 billion Karara magnetite venture in the Mid-West.

JOHN PHACEAS