Fortescue becomes latest company to take a tilt at $10bn Oakajee port and rail project
Some of the biggest resources companies in the word have failed to make the $10bn Oakajee port and rail project work, but now Fortescue Metals Group wants a shot at it.
Fortescue Metals Group has become the latest company to consider a tilt at reviving the long-stalled $10 billion Oakajee port and rail project in Western Australia, saying on Friday it had signed a deal with China’s Sinosteel to assess the project.
Fortescue said it had signed a memorandum of understanding with Sinosteel for a “rapid project assessment” of the potential development of a massive magnetite mine, a new port near Geraldton and the 600km rail network needed to link Sinosteel’s Midwest magnetite projects mine to markets.
Sinosteel acquired the core of the projects through its $1.4bn acquisition of Midwest Corp in 2007, when Chinese firms spent tens of billions trying to buy up early-stage resource projects in Australia to fill its booming steel mills.
Like many similar acquisitions, however, it became an expensive disaster as Sinosteel’s plans came a cropper against the vast infrastructure spending needed to create a link between the mine and its markets.
Attempts to develop vast magnetite iron-ore deposits in the Mid West region of WA have been considered for close to 50 years, but the intense processing needed to develop magnetite ore, as well as the infrastructure development required, have so far blocked the emergence of the region as a major iron-ore province.
The closest attempt came at the height of the last iron-ore boom, when the Oakajee port and rail project became a pet project of the then premier Colin Barnett, after Murchison Metals became the lead proponent to build a rail network linking scattered iron-ore deposits in the region, as well as a new port at Geraldton.
Those plans fell apart in 2011 amid soaring construction costs and wrangling over tariff levels for port and rail users, and Japan’s Mitsubishi paid $US325m to take out the half of Murchison it did not already own.
Sinosteel, a cornerstone Oakajee customer, acquired the rights to the infrastructure from Mitsubishi for a nominal sum in 2019.
The only magnetite mine built in the region is the Ansteel-owned Karara mine, which suffered from multibillion-dollar construction blowouts and significant teething troubles when it was completed, and is still to repay its construction costs.
Fortescue has now become the latest developer to take up the Oakajee banner, saying its deal with Sinosteel allows it to acquire the rights to the Oakajee infrastructure, and half of the mine, if the project assessment delivers positive results.
“The signing of this MOU demonstrates Fortescue’s commitment to our strategic pillars of investing in the long-term sustainability of our iron-ore business, expanding into new regions and continuing to deliver strong returns to our stakeholders,” Fortescue chief executive Elizabeth Gaines said in a statement on Friday.
Fortescue is already building a magnetite mine in the Pilbara. It, too, has suffered from a $1bn cost blowout, with first shipments from the mine expected by the end of the year.
Fortescue shares closed down 45c, or 2 per cent, to $20.94 on Friday.