mighty oakajee

Long and winding path to Oakajee deal
ANDREW BURRELL From: The Australian July 04, 2011 12:00AM

VETERAN businessman Ken Court would love to be back at the centre of the decades-long dream to build a deepwater port at Oakajee, a vacant piece of coastline north of Geraldton in Western Australia's emerging Mid West iron ore region.

Court was the chairman of Kingstream Steel, a Taiwan-backed company that collapsed 10 years ago after spruiking an ambitious $2 billion plan to use the Mid West's vast iron ore reserves to feed a major steelmaking plant at Oakajee.

When he looks back on the Kingstream collapse of 2001, Court sees a huge missed opportunity. If the project hadn't been derailed by the Asian financial crisis of the late 1990s, shareholders would probably have been rolling in riches, once strong demand for iron ore and steel kicked in from 2003 .

"It was a different time -- iron ore prices were nothing like they are today," says Court, 67, who reckons the eventual development of Oakajee will be "the most significant of our generation".

Today, even during a resources boom, the Oakajee vision remains elusive, as a new breed of aspirants attempts to build the critical infrastructure needed to transform the Mid West into Australia's next great iron ore province.

A $6bn plan for a major port at Oakajee, linked by a 570km rail network to the region's mines, appears increasingly unlikely to proceed in its present form, as rising costs and delays threaten to sink the hopes of developers Murchison Metals and Japan's Mitsubishi. In a sign of how the world has changed so radically in the past 10 years, this time it won't be Taiwan or Britain (the planned source of Kingstream's financing in 2001) that will emerge to save Oakajee.

Instead, China Inc is waiting to pounce on the project so it can tighten its grip on the Mid-West, allowing it to export iron ore and maintain its mind-boggling pace of industrialisation at home.

Chinese state-owned metals giant Sinsoteel's decision last week to suspend work on its $2 billion Weld Range project -- one of three foundation customers of the Oakajee port and rail network -- was probably the final straw for an infrastructure project that has long been struggling to prove its viability.

Today, Murchison is due to tell the market whether the two projects that it half-owns with Mitsubishi -- Oakajee Port and Rail (OPR) and the Jack Hills mine -- can be developed within the timeframes and budgets previously disclosed.

China lost a 2008 tender to build Oakajee, but since then it has become painfully clear to Murchison -- a relative market minnow -- that it will need to sell down or remove itself altogether from the project and let Beijing's money complete the job.

Most of the key mines in the region already have Chinese equity, including Sinosteel's Weld Range, Gindalbie Metals' Karara mine (which is backed by Chinese steel mill Ansteel) and Asia Iron's Extension Hill project.

Court, whose father Sir Charles and brother Richard were both Liberal premiers of WA, says he is uncomfortable that China appears poised to take control of the Oakajee project.

But he takes solace in his belief that Oakajee will finally be built this time around. "It's going to go ahead, but the obvious problem is that it's going to be Chinese-owned," he says. "That's something that has to be sensitively handled -- there needs to be Australian participation."

One of the few constants in the Oakajee saga has been Colin Barnett, who has moved from being a resources minister under Richard Court in 2001 to being all-conquering premier at a time when mega-projects are in vogue.

Barnett has invested much political capital in the success of Oakajee. In the late 1990s, he championed the project in cabinet after Richard Court excused himself due to his brother's role as Kingstream chairman.

Barnett pushed through the state government's purchase of the land needed for the port and publicly backed the Kingstream steel mill proposal. "I'm confident it will fall into place and, yes, I expect it to go ahead," Barnett said in June 2000.

Ken Court reveals that Barnett's decision that Oakajee would become the main port for the region may have inadvertently contributed to Kingstream's collapse, but he doesn't blame the former resources minister. "Kingstream initially wanted to ship out of Geraldton, but Barnett insisted it be shifted to Oakajee," he says.

"It caused a time delay. And it meant to make it work we had to double the size of the plant. The whole thing was scaled up. The delay did hurt, but I still think his decision was right."

These days, Barnett is even more entwined with Oakajee's fate. Upon taking office in 2008, he committed taxpayers' money to the project and has become involved in commercial discussions from which many politicians would refrain. Significantly, he continues to proclaim he is confident the project will go ahead -- words that proved hollow last time.

Despite the high-profile failure of Kingstream, Court has not given up hope that the Mid-West's iron ore can one day be used to feed a steelmaking plant at the planned Oakajee industrial zone -- a move that would end years of failed attempts at downstream processing of WA's iron ore.

In 2009, Ansteel announced it would conduct a feasibility study into building a steel mill at Oakajee. But Court believes Sinsosteel, when it is inevitably lured back to its Weld Range project through a restructuring of Oakajee that lowers customer tariffs, holds the key to establishing a steel industry at the site.

Court says almost $100 million in feasibility work done by Kingstream remains in the hands of Sinosteel, which bought a large chunk of the failed company in its previous Australian-owned guise as Midwest Corporation.

He also points out that Oakajee is a good site for a steel mill, because it has far lower construction costs than the Pilbara due to its proximity to Geraldton and Perth, as well as a ready source of water and gas.

"It's frustrating that we continue to develop iron ore mines and flog it without getting the value-added component," Court says.