beijing's oakajee rethink as review

Source: http://www.theaustralian.com.au/business/mining-energy/beijings-oakajee-rethink-as-review-will-further-delay-59bn-project/story-e6frg9df-1226194982972



CHINA'S $US400 billion sovereign wealth fund, China Investment Corp, has launched an in-depth review into whether Beijing should rescue the troubled Oakajee port and rail project in Western Australia's Mid-West or walk away from the region altogether.

In a highly unusual move, China's peak economic planning body, the National Development and Reform Commission, has ordered the CIC to conduct due diligence on the planned $5.9bn infrastructure project.

China has been locked out of investing in the Oakajee project despite its status as a major investor in the iron ore mines of the region, but WA Premier Colin Barnett has been pushing for the Asian powerhouse to become involved.

High-level sources in Perth and Beijing said the CIC review was a possible sign that officials in Beijing were growing increasingly nervous about the project, which has been hit by a series of crippling cost blowouts and major delays.

"This shows that all bets are off -- anything is possible," said one source. "If they (the Chinese) were fully committed to saving this, they would have flagged that by now."


The CIC review comes as embattled Perth mining company Murchison Metals casts around for fresh sources of funding to build the infrastructure after admitting in July it was unable to fund its share of the project. Murchison's joint venture partner, Japan's Mitsubishi, has given the green light to a restructure of their development vehicle, Oakajee Port & Rail, which may involve bringing in Chinese investment.

Mr Barnett and senior government officials have also held talks in Beijing in a bid to save Oakajee.

The high-level Chinese review means Oakajee is now 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.

The delay 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 infrastructure would open up Australia's next major iron ore province, in the Mid-West.

The CIC is due to report to the NDRC within a few months on which, if any, of China's state-owned entities should invest in Oakajee and the mines of the Mid-West region.

The cashed-up wealth fund may even recommend that it should itself invest in the Oakajee infrastructure project.

But it could also 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, according to sources familiar with the review.

The NDRC's decision to ask the CIC to review Oakajee may also reflect a lack of confidence in state-owned trading giant Sinosteel, the biggest Chinese investor in WA's Mid-West.

Sinosteel is widely believed to have paid too much when it bought Midwest Corp for $1.4bn in 2008 and has been hit by a series of internal controversies.

Sinosteel shelved its proposed $2bn Weld Range mine in the Mid-West earlier this year, citing high tariffs proposed by OPR.

The NDRC normally decides whether to invest in overseas projects after taking advice from the state-owned enterprise proposing the investment.

One source said the request to the CIC to do due diligence on the Mid-West was "unique".

Mr Barnett said last month that China was keen to invest in the infrastructure but still felt offended at being originally excluded from Oakajee.

Mr Barnett will come under pressure to strip OPR of the exclusive right to build Oakajee if, as expected, it fails to meet a December 31 deadline to prove the project viable.

Mr Barnett has already extended the deadline for OPR to sign up customers and finalise detailed implementation agreements from March 31 to December 31.

New Murchison chief executive Greg Martin has argued that Mr Barnett should stick with OPR because it is "project-ready", having spent hundreds of millions of dollars on feasibility work.

He said it was unrealistic to expect Murchison to complete a strategic review -- aimed at plugging a $2bn funding shortfall for OPR and its Jack Hills mine -- by December 31.

WA Department of State Development acting director-general Steve Wood last week met representatives of the NDRC in Beijing.

The meetings followed the signing of a trade and investment agreement between the WA government and the NDRC in September.

The pact is intended to minimise tensions in business dealings between China and Australia.