MAGNETITE – the poor cousin of Western Australia's booming iron ore sector – is about to get a $5 billion-plus Chinese cash injection and mining contractors are jostling for a slice of the pie. The Metal Detective, by Stephen Bell
A lower-grade iron ore that needs expensive processing before it can be used in steel mills, magnetite has played second fiddle to WA's direct shipping ore projects.
Andrew "Twiggy" Forrest is building a DSO project, would-be marriage partners BHP Billiton and Rio Tinto are furiously expanding their high-grade mines, and the Murchison-Mid West soap opera is scripted largely on DSO.
Several juniors – including George Jones' Gindalbie – are planning magnetite ventures, but progress has been painfully slow because of infrastructure hurdles.
The Metal Detective despaired of seeing a magnetite project get up before his kids chuck him into a retirement home.
However, he is now much more optimistic after attending the launch last week of CITIC Pacific's $A5.2 billion Sino Iron project in the Pilbara.
This is one that has slipped under the radar, and MD reckons it is a good chance to get up, with construction kicking off in the first quarter of 2008.
There are a couple of reasons for his confidence.
Sino Iron is only 25km away from a proposed new port at Cape Preston – near enough to use pipelines and conveyors rather than rail.
And CITIC Pacific Chairman Larry Yung, one of China's richest businessmen, doesn't stand up at a swish Perth function and boast about his $5.2 billion project unless he has most of his ducks lined up.
Yes, Hong Kong-listed CITIC is starting 'in the red', having paid Clive Palmer $US415 million ($A471 million) for 2 billion tonnes of magnetite ore excised from Palmer's Balmoral project, 100km southwest of Karratha.
But the Chinese were willing to deal with Palmer because of his control of 60-100 billion tonnes in total near the coast, over which he has spent around $50 million on studies in the last two decades.
Despite a couple of false steps – the aborted Austeel iron and steel project several years back springs to mind – Palmer has done a lot of the ground work.
After several years of quiet due diligence, CITIC is ready to push the button, with contracts in place for a mine, concentrator, pellet plant, slurry pipeline, port facilities, power station, and desalination plant.
On the mining side, CITIC is using Central Mining and Contracting, an indigenous Pilbara-based contractor, for "preliminary" development, including a test pit.
In the longer-term, CITIC plans owner mining, with the aim of producing 27.6 million tonnes per year of pellets and concentrates.
Mainstream contractors haven't been totally shut out, though.
Right alongside CITIC is Balmoral South, Australasian Resources' proposed $2 billion-plus venture.
Australasian managing director Andrew Caruso reckons his project is only 12 months behind Sino Iron, and hopes to begin construction of a 12Mt per annum operation in late 2008, leading to production by 2010.
At a proposed rate of 80Mtpa (ore and waste), Balmoral South will be equivalent to one of the large Pilbara mines owned by Rio Tinto or BHP.
Australasian has tendered the job (which includes 30m of pre-strip) to three contractors – Thiess, Roche Mining and Leighton – with submissions due in before year-end.
Caruso is asking for a fixed price, likely to run into several hundreds of millions of dollars based on recent Pilbara contract extensions.
His timetable is contingent on China's Shougang steel group exercising an option next June to earn a 50% in stake in Balmoral South by stumping up the capital cost.
Much of the cost will be a port at Cape Preston, which is being funded one-third Australasian and two-thirds CITIC Pacific.
If location is everything in real estate, it certainly doesn't do any harm in mining either.
Australasian's shares have more than doubled since August, as CITIC's proposal gained more traction.
Balmoral South, which was vended into Australasian earlier this year by Palmer in return for a 59% stake in the junior, is based on a JORC-compliant resource of 1.1Bt.
But Caruso expects the number to be upgraded in January or February.
There are a couple of hurdles for CITIC and Australasian to jump over.
One is power supply. CITIC plans a 450MW facility, and finding the fuel in WA's tight domestic gas market is one possible sticking point.
The company is in gas supply talks, with Apache's offshore Reindeer discovery one possibility.
Labour is another problem.
CITIC anticipates a construction workforce of 2500, and it will soon start an Australia-wide recruitment campaign.
The Chinese company is competing with the likes of Woodside, BHP and Rio Tinto, and would be happy to import overseas workers to fill the gap.
But shipping in foreign bodies is a political minefield.
Perhaps one of Prime Minister Rudd's early tests of his avowed independence from the unions will be whether he smoothes the waters for CITIC on the foreign labour front.
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