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Iron ore projects in Australia threatened by lower prices
November 8, 2012

Two iron ore developments in Western Australia worth a combined $7.5 billion are in serious jeopardy because of falling iron ore prices and an uncertain global economic outlook, The Australian reported.

Japan’s Mitsubishi fired 70 of its 110 employees at its $5.9 billion Oakajee port and rail project. Jupiter Mines also halted work on its planned iron ore mine.

The cutbacks come after miners including BHP Billiton and Fortescue Metals Group pared back their Pilbara expansion plans and dismissed workers in recent weeks.

The $5.9 billion Oakajee port and rail project, which is aimed at freeing up iron ore exports from Western Australia’s promising Mid West region, has been in serious trouble for at least 12 months. Mitsubishi chief executive Ken Kobayashi said in Tokyo that the conglomerate, which has spent $700 million on Oakajee so far, was reluctant to invest further in the resources sector given the downturn in prices.

He said recent diplomatic tensions between Tokyo and Beijing - involving a dispute over islands in the East China Sea - had stymied plans for China to save the project with a big equity injection, The Australian said.

Oakajee Port and Rail chief executive John Langoulant denied that Mitsubishi had shelved the project indefinitely, saying it had simply decided to slow the rate of spending while talks with China continued. But he said he could not provide a revised timeline for the project.

Langoulant said that about 40 employees would be retained, but they would work mainly on Mitsubishi's Jack Hills iron ore project, which is one of the Mid West mines that is relying on the Oakajee infrastructure to be built.

The delay is a blow to Premier Colin Barnett, who has championed Oakajee as one of the key projects he wants to see developed.

He said China might buy out Mitsubishi’s interest in the infrastructure to allow the Japanese company to concentrate on the Jack Hills Mine.
Barnett said the state government would try to get Mitsubishi and China talking to each other again, adding that the looming change of leadership in China's Communist Party might help to end the stalemate.

Construction of the Oakajee port and rail network was to have started early this year, with production beginning in 2015. But the latest delay means the mines in the Mid West will have to wait until at least 2017 - when iron ore prices are expected to have fallen further - to begin exporting in large volumes.

China’s Sinosteel said last year it was shelving its $2 billion Weld Range project in response to the cost blowouts at Oakajee.
Jupiter Mines said it would stop work on its $1.6 billion Mount Ida iron ore project near Kalgoorlie, citing the “depressed iron ore price and strong exchange rate environment.”

 

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