Monthly Archives: January 2019

Time to open up the MidWest

In line with Chinese Government policy to cut emissions, increasing demand from steel mills for less polluting magnetite iron ore will boost Western Australia’s magnetite production. Geraldton Port and the planned Oakajee are ideally placed to ship this product.

I am delighted to be sharing the podium today with the likes of Nev Power from FMG, Sun Xiaoxuan from Sinosteel, Lu Yongfeng from CNOOC and Phil Edmands from Gilbert + Tobin at the Australia China Business Cooperation Forum organised to AIACF to host a visiting Chinese delegation from the Belt & Road Initiative.

I set out below an address prepared for the conference on the opportunities for Western Australia from Belt and Road.

ADDRESS

In May this year, President Xi Jinping aptly labelled the Belt and Road Initiative as: “The project of the century” that “will benefit people across the world”. We need to make sure that Australia does not waste this historic opportunity.

In this session I will describe to you a large, exciting infrastructure project. It is a project that is ideally suited to become a flagship project for Sino Australian collaboration under China’s open and inclusive Belt and Road initiative.

I am talking about the port, rail, pipeline and downstream processing economic infrastructure project that will open up the Mid West Region of Western Australia.

This is a project under the name OAKAJEE that is well known to Chinese Government and to Chinese mining and construction companies. Indeed, CREC, who are sitting alongside me on the panel have known about this project for some ten years.

It is a project that has suffered and been delayed as a result of bad decision making in the past. But now is the time to present a China led solution to take advantage of prevailing favourable conditions for the construction of major projects.

Today I will briefly touch on:

 Why the Mid West matters to China

 The importance of magnetite iron ore

 The innovative infrastructure solutions that could open up the Mid West

 Why China’s involvement is of fundamental importance

Why the Mid West matters to China

So why is it important to Australia and important to China to open up the Mid West Region of Western Australia?

The MidWest Region, which used to be known as the Murchison, is one of nine regions in Western Australia. It has a total area of almost 500,000 square kilometres. That makes the MidWest larger in size than each of Japan, Korea and Germany. It is a massive region.

From the Australian perspective, the region is underdeveloped and is hindered by the lack of a deepwater port.

From the Chinese perspective, the region is a potentially huge resources province within which China can play a leading role.

The importance of magnetite iron ore

Here in Australia there is a commonly held perception that the iron ore story is all about hematite iron ore.

That is a story that has been told and told well by Rio Tinto and BHP Billiton over several decades. The story is borne out by hematite ore dominating Australian iron ore production.

However it has created the impression, the false impression, that magnetite iron ore is a new, risky industry with the development and processing costs representing an insurmountable hurdle. The inference is, of course, that investors should steer away from magnetite projects.

In addition, the challenges of China’s initial foray into magnetite projects in Western Australia have been well documented, but lessons have been learned and the underlying benefits and appeal of magnetite remain intact.

Negative perceptions concerning magnetite are unfortunate because magnetite iron ore has many advantages over hematite ore and those benefits are ever increasing. There are good reasons why there are strong magnetite industries in the US, Russia, China and the Middle East.

It is important to note that there are many huge scale magnetite projects awaiting development, whereas the large hematite projects to be developed are largely located in countries with high levels of sovereign risk.

Magnetite ore is generally found in large quantities with a low iron grade in the range of 30-40% Fe. In Western Australia it is mainly found in the form of Banded Iron Formations or BIFs. The ore is however easy to upgrade to a high Fe content, greater than 68%.

Upgraded magnetite (typically in the form of fines, concentrates or pellets) is much higher grade than hematite ores and, consequently contains lower levels of contaminant such as silica, phosphorus, aluminium, sulphur and even asbestos.

This lower level of contaminants is reflected in significantly improved performance in the furnaces of steel makers with reduced slag volumes and reduced coal/coke usage. This means reduced CO2 emissions and much lower levels of pollution.

The importance of this to the Chinese Government cannot be overstated, with the Government mandating reductions in pollution by steel producers and promoting quality over quantity. This would suggest that the restructure of iron ore pricing that has emerged over the last couple of years is structural and long-lasting.

The importance of this higher grade product is reflected in the premium price that is paid by the Chinese steel mills for magnetite products, both to recognise the higher iron content and to reward the improved performance in the furnace as a result of the lower level of contaminants.

Magnetite iron can achieve prices more than 200% higher than lower grade iron ore that is being produced by a number of Australian operators.

The much higher price that is achievable for magnetite concentrates translates into magnetite producers being able to support a significantly higher capital and operating cost than DSO operations.

The innovative infrastructure solutions that could open up the Mid West

In the past, Chinese mine developers in the MidWest have only been offered one solution. That was the solution proposed by the Japanese company Mitsubishi that had been, unfortunately, awarded the right to construct both port and rail in the MidWest.

The Japan solution was not only politically unappealing to Chinese companies but also economically not feasible given:

1. China’s perception that Mitsubishi sought to subsidise its problematic Jack Hills mine

2. The port and rail design was seen to be over-engineered and unnecessarily costly

3. Mitsubishi sought to recover its proposed costs and a significant profit margin solely off foundation customer supply contracts on onerous terms.

There are many potential solutions that could significantly reduce capital costs. These could include:

1. A jetty rather than a break water and dredging programme

2. Transhipment, potentially to a moving, floatable, harbour

3. A network of large slurry pipelines, initially to the east to major deposits like the Cashmere Downs project and Boolyagoo

4. Rail network collaboration

5. Power and Desalination plant at Geraldton

6. Construction in part on the Oakajee Industrial Estate land rather than on sand dunes.

Why China’s involvement is of fundamental importance

There are many reasons why China is important to any solution in the MidWest and why companies like Aust Sino Resources Group are seeking to be a catalyst to promote the development of port and rail infrastructure. These are some of the main reasons:

1. China has already invested massively in mining projects in the Midwest including in large projects like Sinsoteel’s Weld Range project and AnSteel’s Karara project.

2. China is the end customer for the vast majority of the expected production of magnetite products from the opening up of the region

3. China has the financial capacity to fund the necessary port, rail and/or slurry pipeline project costs that will take the capital expenditure burden off the mining projects so they can focus on mine investment

4. China has already conducted extensive studies into the development of economic infrastructure solutions for the region

5. China has massive experience in major infrastructure projects through companies like CREC and CCCC and possesses the construction muscle that is essential.

There is a need for new perspectives, new insights and new energy to open up the Mid West. Together we can make it happen.

Conclusion

Thank you for your kind attention.

I hope that you agree that the Mid West Region will be a flagship win-win project for Belt and Road collaboration between the two great countries of China and Australia.

Whilst our political masters here may be dragging their feet more than we would like in endorsing Belt and Road, the opportunity for Australian business to step up and lead the way in unlocking the attractive trade and investment opportunities afforded by Belt and Road is very clear.

DUNCAN CALDER ON THE 2019 NEW YEAR’S RESOLUTION THAT GERALDTON WANTS TO HEAR

At this time of the year, we each tend to reflect on our lives and make resolutions about what we want to change in the New Year.  The people of the Mid West Region of Western Australia may well be hoping that Western Australian Minister Alannah MacTiernan makes her 2019 New Year’s Resolution to be to “Make Oakajee Happen”.

When Duncan Calder, Managing Director of Contour Capital, advised the Geraldton Port Authority some years ago, he was blessed to be mentored by the former WA Premier, the Hon Richard Court AC. Richard consistently provided Duncan with sage advice that he always accepted.  Always… except once. 

Richard warned him that deepening the access channel at Geraldton Port would mean that a deep water port at Oakajee would never be developed. Duncan disagreed, believing that a deeper Geraldton Port would, in fact, be an incubator for the iron ore industry that would grow and be a catalyst for the strategically critical Port of Oakajee to be developed at a later date. 

Until recently he remained confident that he was right and that the former Premier was wrong. 

However, with Mt Gibson’s hematite iron ore exports through Geraldton at an end, with the ability to use wider 90,000 ton vessels being introduced by Ansteel for its Karara production and with the cap on iron ore exports through Geraldton being lifted, there appears to be a reduced sense of urgency for Oakajee to be developed. 

Duncan now fears that there is increased potential for the next Mid West iron ore project to be funnelled through Geraldton Port rather than becoming a badly needed foundation customer for Oakajee Port.  WA needs a visionary leader to ensure that emerging projects are a catalyst for an Oakajee Port that can accommodate far more than just one new project; an Oakajee Port that can truly open up the Mid West.

Minister MacTiernan, arguably Western Australia’s first politician since the great Sir Charles Court with a visionary commitment to opening up the state, was the minister responsible for the last great projects that breathed life into Geraldton and the Mid West.  Visitors to Geraldton now see its beautiful foreshore. But it was not always so.  Many of us remember the glorious ocean view being constantly blocked out by a kilometre plus long grain train along the full length of the foreshore.

It was Alannah MacTiernan who had the vision to transform Geraldton through the game changing projects to build the city’s southern transport channel and deepen the port’s access channel and inner harbour. 

Duncan Calder worked for three years with the then Geraldton Port Authority to compile a powerful and robust business case for these projects, but the Under Treasurer was committed to blocking them and Treasurer Eric Ripper was falling into line behind that view.  It was Alannah MacTiernan as Minister for Infrastructure who stepped up and forced through the projects and Geraldton has profited ever since. That takes bold action and leadership.

Now the development of a deepwater port at Oakajee would be the game changing project that can fully open up the MidWest and bring the momentum that is needed to lift the Mid West out of the doldrums. But it needs a visionary to make it happen.  It needs bold action.  It needs MacTiernan.

Last month W.A. Premier Mark McGowan quietly reshuffled his cabinet. There wasn’t much media coverage, but critically, MacTiernan picked up the Ports portfolio. This appointment may just be the change needed to bring Oakajee back into focus, back onto the political agenda.

Most of us have seen the movie “Jerry Maguire” and recall Cuba Gooding’s iconic line to Tom Cruise – “Show me the money!”  

Whenever proponents seek to promote discussion about the Port of Oakajee with the WA Government they receive a similar line – “Show me the mines!” 

The logic behind this position seems reasonable on the face of things. Nobody wants a white elephant port development that has no users, even if the investment funds all come from offshore. 

Nobody in Government wants to be associated with yet another failed attempt to promote Oakajee.

There appears to be a growing lack of confidence in the WA Government bureaucracy that the Mid West Region will become a 100 million ton per annum iron ore province.  This is odd, given that China, the end customer for the high quality magnetite ore that the Mid West will deliver, remains convinced of this great potential.

This current fear-driven mentality misses the point.  It means that W.A. may allow itself to be satisfied with one modest new project in the Mid West rather than allowing the full potential of the region to be achieved.  This fear-driven mentality fails to recognise that the potential miners in the region are not going to create or refresh business feasibility studies whilst Government interest in Oakajee is so fear fuelled. There is no shortage of potential iron ore mine customers in the Mid West – both to the north of Oakajee and to the south and east. An infrastructure led solution is needed to spark renewed investment by miners.

Everyone in the Mid West and in the WA Government recognises that China has spent around $5billion in compiling its mining project interests in the MidWest and that these large investments are largely stranded without a deep water port and that a port at Oakajee is simply not feasible without China’s financial support.

Moreover, the owners of these mines have made it clear that further investment in the mining projects in the Mid West to crystallise resource upside will not happen without hope and belief that a deep water port export pathway will be established and is supported and encouraged by the WA Government.

As President of the Australia China Business Council for a decade, Duncan developed close relationships with China’s WA business and diplomatic leaders.  There is no doubt that the current poor state of the Sino-Australian political relationship and the strong anti-China rhetoric emerging from Canberra fuelled by China hawks in the Australian and US defence sectors is a substantial challenge to collaboration on a major infrastructure project.

So does this all mean that Minister MacTiernan should put Oakajee in the “too hard basket”?

Absolutely not!

We need bold action and we should not lose sight of the positive factors that underpin the reason why Oakajee has been long considered to be a critically important project for the development of WA.  These include:

  • The Mid West still matters enormously to China, given its massive investment to date and its view that the region is a potentially huge resources province
  • The importance of magnetite iron ore is growing ever stronger along a positive long term trajectory. The importance of this higher grade is reflected in the premium price that is paid by the Chinese steel mills
  • China has massive experience in major infrastructure projects and possesses the construction and financial muscle that is essential to delivering the innovative infrastructure solutions that could open up the Mid West.

We have recently seen a number of early stage infrastructure proponents emerge seeking to bring Oakajee back into focus. These can be an invaluable conduit to re-igniting Chinese interest in developing critical port and rail infrastructure in the Mid West.  They need to be encouraged, not discouraged.

Oakajee is a critically important project that has suffered and been delayed as a result of bad decision making in the past; let’s hope that Minister MacTiernan will again provide the bold visionary leadership that we need to ensure that history does not repeat itself.  Let’s hope Oakajee becomes her 2019 NY resolution.

Media Contact
Company Name: Contour Capital
Contact Person: Duncan Calder
Email: Send Email
Phone: 61 439 299 817
Country: Australia
Website: http://contourcapital.com.au/