There is mounting speculation the capital cost of the Oakajee port and rail project has blown out to as much as $6 billion, potentially crippling attempts by the embattled Murchison Metals to get the contentious infrastructure development off the ground.
Already struggling to meet a WA Government timetable to conclude a State Development Agreement for Oakajee, it is understood design and scope changes have sparked a significant increase in the capital cost for Murchison subsidiary Oakajee Port & Rail.
OPR's last disclosed budget was $4.3 billion, with the WA and Federal governments pledging to contribute up to $800 million towards its development.
Murchison is expected to address the Oakajee issue today when it responds to a WA Government offer of an extension of time to complete the State Development Agreement.
Under the original government-assigned right, Murchison and OPR had until the start of next month to complete the agreement. However, Murchison said late last year it was running three to six months behind schedule and therefore relying on Government support to maintain its exclusive Oakajee development mandate.
Premier Colin Barnett, who has expressed his frustration at the development delays for Oakajee, a project he has long championed, confirmed five weeks ago he had offered Murchison an extension with undisclosed "exacting conditions".
It is understood Mr Barnett is willing to give Murchison until the end of the year to complete the State Development Agreement if the onerous conditions are met.
Although the Premier has refused to divulge the conditions, his publicly expressed frustration with Murchison has prompted some in the mining industry to suggest the conditions may be too onerous for Murchison to achieve, and that Murchison would therefore have no choice but to stick to the original April timetable and try to salvage the Oakajee exclusivity.
Murchison last night placed its shares in a trading halt at $1.38, pending "an announcement concerning the Government's response to the company's request for an extension to the State Development Agreement . . . for the Oakajee infrastructure project".
Murchison further said it expected to make an announcement by this afternoon, when its senior management will be on their way to New York as part of a North American investor roadshow.
A Murchison spokesman last night refused to discuss the extension. Adding to Murchison's woes is its insistence that OPR relies on the development of the Jack Hills mine, which is struggling to prove its financial viability. Like OPR, Jack Hills is half-owned by Murchison and Mitsubishi Development.
Despite boasting a three-billion tonne resource, Jack Hills' grade is low sparking concerns a capital cost of up to $6 billion could render the development uneconomic.
There is industry talk that Jack Hills' senior management had suggested a restructured development plan, mining only the direct-shipping hematite ores - a fraction of the overall resource - to guarantee a small but viable operation.
Murchison's woes have created friction with Chinese-controlled iron ore projects in the Mid West, which are being lined up as Oakajee foundation customers.
The Chinese faction, led by Gindalbie Metals and Sinosteel Midwest, is desperate for Oakajee to be built as quickly as possible.
