China's appetite for iron ore draws magnatesBy Rod MyerApril 6,...

China's appetite for iron ore draws magnates
By Rod Myer
April 6, 2006


WITH the Chinese buying minerals like they're going out of style, the optimists are emerging from their shells to ensure their place on what is probably a once-in-a-generation bandwagon.

Nowhere is this more evident than in Western Australia's Pilbara iron ore region, where Professor Clive Palmer has hit the headlines as a latter-day Lang Hancock.

Like the famed late iron ore magnate who — probably apocryphally — sat on his station homestead veranda watching the iron ore trains pass happy in the knowledge that the profit from every 10th was his, Professor Palmer has, after 20 years solitary and determined labour, managed to develop an enormous new field as a private individual.

Under a $5 billion deal he signed this week with Chinese finance giant CITIC Pacific, he will earn 6 per cent royalties as the Chinese invest $US215 million ($A300 million) in the first billion-tonne segment of his Balmoral deposit.

Ultimately, CITIC could take up to 6 billion tonnes of magnetite iron ore, creating a huge new province that will build on the Pilbara's boom immeasurably. It will also spend $US2.5 billion on building a huge new port and processing plant at nearby Cape Preston, about 80 kilometres south of Dampier.

That's where Darren Hedley, managing director of listed Sherlock Bay Nickel Corporation, comes in. Mr Hedley is a production guy and he has an interest in two handy deposits in the Pilbara: a nickel deposit after which his company is named; and some ground adjoining Professor Palmer's iron ore show.

He is trying to win control of that iron ore ground with a deal that mimics CITIC's gambit. But Sherlock Bay is capitalised at $75 million and Mr Hedley doesn't have the resources of the People's Republic of China at his disposal. So he's come up with a canny plan to deal himself into the picture.

He has an agreement with Professor Palmer's Mineralogy company to spend some of his cash drilling on South Balmoral to make sure it is as promising as the bit CITIC has already signed off on. If it is, he then plans to buy a Mineralogy subsidiary, Cane River, which has rights to mine 400 million tonnes of ore on the Balmoral bonanza. And, after CITIC has spent its billions on the port infrastructure, it will sell the ore across the sea to China, or elsewhere.

But Mr Hedley has only until the end of May to finish his drilling program and come up with a deal that will catch the good professor's fancy. Mr Hedley is tight lipped on what that deal might look like but he says he's looking at all possibilities, including cash and scrip. It will be interesting to see what he can come up with that could match CITIC's deep pockets.