Oakajee project like a crash in slow motion

MURCHISON Metals' confession that it is having trouble delivering the Oakajee project is like watching a car crash in slow motion.

MURCHISON Metals' confession yesterday that it is having serious trouble delivering the $6 billion-plus Oakajee port and rail project in Western Australia feels a bit like watching a car crash in slow motion.

The Perth-based miner, which is just three days away from finalising a bankable feasibility study for Oakajee that will probably reveal more bad news on cost blowouts, broke its silence to make two crucial admissions.

First, it is more than likely to sell down its Oakajee stake to China Inc after being unable to raise its share of the equity funding needed to get the project off the ground.

Second, its half-owned infrastructure vehicle, Oakajee Port & Rail, is yet to sign up a single foundation customer for the critical rail and port network because the tariffs it wants to charge are considered far too high.

It has been a painful process, but Murchison is finally admitting that the project in its present form is in real difficulty, with phrases such as "significant hurdles" and "challenging" dotting yesterday's ASX announcement.

It's a big shift for a company that has consistently played down speculation about problems with Oakajee.

At Murchison's AGM in November last year, executive chairman Paul Kopetjka assured shareholders that all was hunky-dory.

He said the feasibility study for Oakajee and the Jack Hills mine (both of which Murchison owns with Japanese giant Mitsubishi) would be completed by June 30 this year and this would be followed by project financing and then a final investment decision.

Kopetjka blamed a "campaign of destabilisation based on rumour and misinformation" for the market uncertainty that is surrounding the project.

A few weeks earlier, Kopetjka had denied Chinese equity was needed, saying China's participation should be limited to providing goods and services -- even though Beijing has stakes in most of the mines in WA's emerging Mid-West iron ore region.

But that was before the chorus of complaints about cost blowouts and delays became a cacophony, leading WA Premier Colin Barnett to publicly admit that Murchison lacked the financial grunt to be driving a project of this magnitude.

And it was well before Chinese metals giant Sinosteel's bombshell last week that it was walking away from its $2bn Weld Range iron ore project in protest against rising tariffs.

Murchison is still insisting that Oakajee could be a viable project, assuming it can reach tariff agreements with the three foundation customers Sinosteel, Crosslands Resources (which it half-owns) and Gindalbie Metals.

But what happens next is anybody's guess.

Barnett may ultimately be forced to strip OPR of its exclusive mandate and hand it to the Chinese-backed parties previously linked to Yilgarn Infrastructure, which lost the tender to build Oakajee in 2008.

Yilgarn's model was backed by Beijing and could be revived, but it would take some time to update the financial data.

More likely, a hybrid model could emerge that allows OPR to remain in the game but satisfies the Chinese by giving them a bigger stake in the infrastructure.

The only certainty is that every delay is costing the Mid West mining industry, which needs a new railway and port built as quickly as possible to capitalise on high iron ore prices.