Cape Preston decision looms for iron ore hopefuls -------------------------------------------------------------------------------- Wednesday, 6 August 2008
A WESTERN Australian Government decision is looming on changes requested by billionaire Clive Palmer to a six-year-old State Agreement Act over his magnetite deposits at Cape Preston, in the Pilbara. By Stephen Bell
The modifications to Palmer’s Mineralogy agreement should clear the way for iron ore exports out of Cape Preston, shoring up the plans of several magnetite and direct ship hopefuls.
Some industry sources believe that State Development Minister Eric Ripper is only days away from spelling out the long-mooted amendments.
However, if Alan Carpenter’s Labor Government calls an early state election, it may throw a spanner in the works, delaying a decision on the port even further.
Though the mooted Oakajee port in the Mid West has hogged the headlines for the past week or so, Ripper’s deliberations on Cape Preston are potentially of even greater significance to Western Australia’s iron ore boom.
With the state’s Pilbara iron ore ports bursting at the seams, calls are growing for a new deep water port to be built at Cape Preston, roughly 100km southwest of Karratha.
But investors are waiting for clarity on the Government’s amendment to the original Mineralogy act, which provided for only pellet shipments.
Among those watching Ripper’s decision with interest are Palmer’s mooted $5 billion Resource Development International IPO, his merger target Australasian Resources, Perth-based Aquila Resources, and Hong Kong’s CITIC Pacific.
CITIC Pacific, having started construction of its $5.2 billion Sino Iron Project near Cape Preston, is at the cutting edge of Ripper’s deliberations.
In June CITIC extracted the first ore from a 1000-tonne bulk sample of magnetite.
The company has pre-stripped around 10 million tonnes of overburden to reach the ore, and has around a third of its huge mining fleet onsite and commissioned.
CITIC, whose project is based on 2 billion tonnes of resources purchased from Palmer, has also started earthworks for the construction of some key infrastructure.
The latter will include six lines of grinding mills, each 17m high and 12m in diameter, and believed to be the largest mills ever built in China.
CITIC’s current onsite activities have been sanctioned by the WA Government under clauses of the original Mineralogy deal.
Included in the interim approvals were a 6Mtpa pellet plant and various works to support other infrastructure, such as stockpiles, service corridor, plant sites and accommodation.
But CITIC’s total project needs the WA Government to modify Palmer’s agreement so it can ship out magnetite concentrates alongside pellets.
The company plans to produce a 27.7Mtpa mix of ore concentrate and iron pellets, starting in late 2009 or early 2010.
When CITIC unveiled the scope of Sino Iron in November, it hoped the WA approvals for the broader project would come through in the 2008 first quarter.
As it stands, CITIC’s proposal will avoid the need for deep water access at Cape Preston by using barges to transport pellets and concentrates to purpose-built ships anchored off the coast of the new port.
But if CITIC carries through with its proposed expansions to 70Mtpa, a deep water port may make more sense.
And other companies with resources clustered around Cape Preston are desperate for port access.
Australasian, for instance, is studying the Cape Preston deep water port option for its $2.7 billion Balmoral South venture, which will be backed by Shougang if the Chinese steel group submits a finance offer by September 20.
Tony Poli’s Aquila Resources, meanwhile, has identified Cape Preston as the preferred export route for its 50%-owned West Pilbara direct ship iron ore project.
In May, Aquila said that a prefeasibility study on the US$3.9 billion venture recommended construction of 160km of new rail and a new deep water port at Cape Preston, “subject to commercial agreement with other parties”.
Aquila wants to finalise his port in the next couple of months and is watching closely to see what modifications the WA Government imposes on Palmer and CITIC at Cape Preston.
If a deal can’t be negotiated over that site, Aquila will look to its fallback option of Dixon Island, another potential deep water port 80km to the north.
Being further away, Dixon Island will be a more expensive route to market for Aquila.
However, the extra costs may be defrayed by other potential users.
One of those could be Russia’s Evraz, which won control of the Cape Lambert iron ore project last week, signing a development deal with new owner China Metallurgical Group (MCC).
Dixon Island is directly offshore from the Cape Lambert project.
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