Murchison admits Oakajee may fail

MURCHISON Metals has admitted it has "significant hurdles" to overcome to succeed with the troubled Oakajee port and rail project.

MURCHISON Metals has admitted it has "significant hurdles" to overcome to succeed with the troubled Oakajee port and rail project and flagged it is talking to China to divest its interest in the $6 billion-plus plans.

The Perth-based miner has suspended its shares from trading as it scrambles to finalise a bankable feasibility study on the infrastructure project and iron ore expansion plans at its Mid West mine by the end of the week.

Murchison said yesterday that it was working on restructuring the tariffs on the Oakajee project after foundation customer Sinosteel shelved its $2bn Weld Range project last week.

China-backed Sinosteel's move has put the Oakajee project in doubt, in its current format, and prompted West Australian Premier Colin Barnett to renew calls for an overhaul of the ownership structure of the project, which is a joint venture between Murchison and Japan's Mitsubishi.

The two parties are also partners in Crosslands, which is developing the Jack Hills iron ore project in the Mid West and is one of three foundation customers for the infrastructure project.

Sinosteel's withdrawal of support for the infrastructure was said to be because of concerns among the Mid West miners that they were being asked to pay unreasonably high tariffs for use of Oakajee to effectively finance Murchison's mine development, which has had its economic viability questioned by the market.

"The fact that to date it has not been possible to reach common ground with the proposed foundation customers on tariffs and other commercial terms of the supply chain agreements remains a significant hurdle to the development of the projects and a point of further negotiation," Murchison said in a statement yesterday.

"Murchison notes that Sinosteel has confirmed to OPR that it remains willing to engage in ongoing discussions in relation to the supply chain agreements.

"To this end, Sinosteel is seeking a revised tariff structure/model and further certainty on scheduling, including the date by which the port and rail infrastructure will be delivered.

"Murchison considers that agreement on the supply chain agreements remains vital to the development of its projects and, as such, is committed to finding a solution which is acceptable to all parties."

The comments are the first indication that the miner accepts it is struggling to finalise agreements with foundation customers, including China-backed Gindalbie Metals, and that the project is not viable without the emerging Mid West miners agreeing to terms for accessing the infrastructure.

Murchison also flagged that funding its share of the project "remains challenging" and that it was advancing discussions with third parties, including China, to sell some or all of its interest in Oakajee.

Despite Murchison's willingness to engage with China, one industry insider said the economic powerhouse was not interested in talking to the iron ore junior about investing in the current structure, which it views as unviable.

"China is likely to be more willing to engage once all the strings are cut and there is a total restructure," the industry insider said.

Murchison is still confident of releasing the feasibility studies this week, highlighting that they would demonstrate the viability of Oakajee and the Jack Hills expansion. However, it has warned that it is subject to finalising agreements with the foundation customers.