gbg key player for mid west

This article was posted on the MMX thread (thanks Roblun)but will probably also be some interest here. Note the GBG comments about 3 quarters down...

China sees Mid West as balance to Pilbara

Sarah-Jane Tasker | August 17, 2009

Article from: The Australian

MAJOR iron ore producers might have a firm grip on the Pilbara region but China has positioned itself firmly in the emerging Mid West mining province of Western Australia in a strategic play to control future supplies.

As attention is diverted by Rio Tinto's relationship with China, WA Premier Colin Barnett, in a visit to the economic powerhouse, has restated that its presence is welcome in his state, at whatever level.

The Mid West iron ore resources "are nowhere near the scale of the Pilbara, so to me it is not a critical issue if a mine has a majority or 100 per cent overseas ownership", he said.

"There is no fabulous one resource in the Mid West. These are resources that unless they can be collectively developed and have overseas customers and investment, they will remain idle and not get developed."

Infrastructure is the key, and in the Mid West region the government has thrown its support behind the development of a $1.5billion deepwater port at Oakajee, north of Geraldton, and a $2bn open-access railway.

Oakajee Port and Rail, a joint venture between Murchison Metals and Japan's Mitsubishi, won the tender to develop the project as Mr Barnett secured state and federal government support for the port.

Mr Barnett said the development of the region was complex, which was why the government was taking a hands-on approach.

"The port is the critical piece of infrastructure. It has to be available on a multi-user, non-discriminatory basis," he said.

"It will be operated on a commercial basis and will be an Australian government owned port. There has been debate about overseas investment, but national interest is preserved by the government owning the port."

In his tour of China -- just after Rio Tinto's iron ore staff were detained in Shanghai -- Mr Barnett had talks with Mid West players Sinosteel and Ansteel and the chairman of China's National Development Reform Commission, who he said responded positively on Oakajee. Rio's staff have since been charged with bribery and stealing business secrets.

"It was a very tense week in China in terms of Australia-China relations," Mr Barnett said.

"The visit was critical because China was feeling that its investment was not wanted in Australia.

"I spent the week reassuring major state-owned enterprises and government officials at a high level that it was welcome ... however it was configured, not only in the mines but in the infrastructure."

China has already sunk about $2.5 billion into Mount Gibson, Gindalbie, Midwest Corp, Murchison and smaller interests.

As others held out on agreeing to the 33 per cent drop in the benchmark iron ore price, the majors settled with Japan, creating further tensions between producers and customers. Yet demand and the price of the bulk commodity continue to rise.

Strategically for China, the Mid West is expected to help in striking a balance in price negotiations.

China wanted to control an iron ore province to keep the Pilbara honest, one industry insider observed.

It could be argued that China at a high level -- through its established investments and the further capital needed from them for the region -- could say yes or no to the development of the Mid West.

But with Mr Barnett flying the flag for investment, it is expected China's reach in the region will extend further.

Mr Barnett has said he would support any application by state-owned Sinosteel to make an offer for Murchison Metals.

Sinosteel already has about a 6 per cent stake in Murchison, which lost out on its bid to take over rival Midwest, trumped by an offer from Sinosteel.

The Foreign Investment Review Board has ruled that Sinosteel cannot increase its interest in Murchison beyond 49 per cent, but Mr Barnett has said he would go to Treasurer Wayne Swan if Sinosteel was interested in a full takeover. Sinosteel Midwest chief operating officer Giulio Casello said increasing demand being driven by China had boosted interest in the region.

"This is a strategic issue for China. They are not going to make any money out of the Mid West for many years, but the demand for resources for China is going to be strong, so they need to look for alternatives for ... iron ore ," he said

"One of the biggest issues for the region is, unlike the Pilbara which was done by two companies, the Mid West is dealing with up to six independent companies, ore bodies that are smaller, and all of them are dependent on the construction of some infrastructure.

"To finance the port and rail, they need approved mines. To get approved mines you need an approved railway. The whole finance and bankability of this is very interrelated, and one of the major complexities is how you make all of this work."

Mr Casello said he did not know if Sinosteel would eventually make a play for Murchison but there were obvious synergies for Sinosteel, Midwest and Murchison.

"These don't have to be created by one company buying another. From a high-level point of view the potential for synergies is good but you can achieve those at an operational level," he said.

By 2020, the Mid West, on current plans, could be exporting 100 million tonnes of iron ore a year, but the miners have to work together for them to all succeed.

Because of the interdependency, the feasibility studies for infrastructure and major stage two projects for the mines will all take place around the same time.

One of the key players is Gindalbie, which has Chinese giant steelmaker Ansteel as a 36per cent shareholder, and the two are jointly developing the Karara iron ore project.

Gindalbie managing director Garret Dixon said increasing activity in the region signalled a return to the Mid West, driven by China on both demand and capital.

"China has come in earlier because it has been available," he said.

"The region is predominantly magnetite ore, which needs bigger projects to justify the capital. Without that capital (from China) we would be dead in the water. You need to be a BHP or a Rio, we need large investment to mine, and we need large infrastructure."

One of the stumbling blocks for many of the juniors in the Pilbara is access to infrastructure where the majors have a monopoly and won't budge on sharing. The Mid West from the outset will have a transparent system.

"The Pilbara has a long start on the Mid West, but the region is developing a better system for the development of the smaller guys. It allows open access to infrastructure," Mr Dixon said.

Murchison Metals managing director Trevor Matthews said the development of the infrastructure relied on a co-operative approach.

"This region is being developed on a co-operative basis and it is in everyone's interest to work together," he said.

"We are confident about the future of the region and we are seeing larger resources identified for development as we keep drilling and looking at these projects.

"The industry in this region can grow to be a significant iron ore producing province, with a multi-decade future."

It is set to be a fascinating 12 months for the development of the sector, against a backdrop of iron ore price negotiations.

With China in the driving seat it is no longer a matter of if, but when, for the emerging iron ore province.