As iron ore dips from its highest price in five years, China’s Sinosteel has snapped up Mitsubishi’s stake in the stalled $10 billion Oakajee port and rail project set to link up iron ore mines in Western Australia’s mid-west.
According to media reports, Chinese state-owned Sinosteel has confirmed the acquisition of the Japanese giant’s interests in the project.
While attempts to develop Oakajee have been underway for close to half a century, the project came into the spotlight about eight years ago under the leadership of former WA Premier Colin Barnett, who wanted to unlock a new iron ore province to rival the Pilbara region.
The proposed development involved the construction of a deepwater port at Oakajee, located 20km north of Geraldton, plus a 570km railway network to connect to the mid-west region’s iron ore mines.
However, the project was officially suspended in 2013 with Mitsubishi citing falling iron ore prices.
Sinosteel’s acquisition of Oakajee will also effectively resolve a dispute over port tariffs, which had prompted the company to halt work on its $2 billion Weld Range iron ore project back in 2011.
According to The Australian Financial Review, documents filed to the Australian Securities and Investment Commission last week show two Sinosteel subsidiaries paid a minimal $3 each for their 50% stakes in Oakajee Port and Rail, the owner of the studies and intellectual property for the Oakajee project.
One of the subsidiaries also transferred all shares in Crosslands Resources, which holds tenure over the nearby $3.7 billion Jack Hills iron ore project and relies on Oakajee building its proposed $6 million worth of infrastructure to get its product to market.
Despite confirming its acquisition of Oakajee with the newspaper, Sinosteel has not yet stated any current plans to construct the deepwater port or the railway network.
Port tariff dispute
Sinosteel’s nearby Weld Range iron ore project was lined up to be a major customer of Oakajee when development talks were ongoing in 2011.
But when cost blowouts on the port and rail project pushed the proposed port tariffs upward, internal emails leaked to the media at the time showed Sinosteel claiming the tariffs would render Weld Range “economically unviable”.
Sinosteel’s acquisition of Oakajee Port and Rail means the Chinese company will control both the port tariffs and the Weld Range mine, in addition to other iron ore assets in the region.
Strong iron ore prices
This year has been a strong year for iron ore, with its price peaking at the start of July at US$124.50 per tonne (A$181.40/t) after a fatal tailings dam disaster at Vale’s Corrego do Feijao iron ore mine in Brazil resulted in production outages leading to a global supply shortage.
The last time the metal came close to that price was in February 2014, after falling from higher 2013 prices above US$150/t.
However, the iron ore price has since slid back down to around US$85/t (A$124/t) as supply begins to stabilise.
According to S&P Global Platts, other factors weighing into the global price drop include Chinese steelmakers turning to domestic lump ores and only importing fines in the blending process.
It also coincides with US President Donald Trump’s and China President Xi Jinping’s ongoing tit-for-tat trade war.
Even at this lower level, the current iron ore price is still higher than it has been in more than two years.
Today’s news comes less than a week after mining giant Rio Tinto (ASX: RIO) reported iron ore shipments had increased by 5% from July to September, despite concerns of weakened demand from China’s steel mills.