China companies open next chapter on WA mines

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Western Australia’s mining industry has received a China-backed New Year’s boost, with announcements of progress on deals that could underpin the development of the state’s next iron ore, mineral sands and zinc mines.

In the Pilbara, global iron ore trading house Sinosteel Corporation signed a memorandum of understanding in early January with mining group BCI Minerals to explore a possible joint venture and offtake arrangement over the Buckland iron ore mine and port proposal.

Sinosteel and BCI will also discuss the possibility of Sinosteel Equipment and Engineering Co providing engineering services for the proposal, which comprises mining operations over several deposits, as well as a haul road connecting the mine to a newly developed port at Cape Preston East.

If formal joint venture arrangements were made, it would be Sinosteel’s second major investment in WA, adding to its highly successful Channar joint venture with Rio Tinto.

The Channar joint venture is approaching the end of its mine life past 2020, so the BCI MOU is a strong indication Sinosteel is looking to secure additional sources of supply to underpin its future business.

BCI is midway through a drilling program at the project’s Kumina deposit, which is expected to define a mineral resource by the end of March.

The company is also undertaking a study to integrate Kumina with another deposit, Bungaroo South, which is expected to be completed by the end of June.

A final investment decision is targeted for early next year, with BCI seeking to secure a joint venture partner and offtake arrangements, as well as a contracting and procurement strategy, before the end of 2018.

BCI managing director Alwyn Vorster said formal arrangements with Sinosteel could be reached before the end of the year.

“Involving a credible and experienced partner such as Sinosteel provides momentum to the development of the Buckland project,” Mr Vorster said in a statement.

“Sinosteel has a long and successful history of partnering in Pilbara iron ore projects and we look forward to working with them to ensure that potential joint venture, offtake, development and funding arrangements can be progressed in a mutually beneficial manner.”

The Sinosteel-BCI MOU was followed by the ratification of a similar arrangement between China Minmetals subsidiary China ENFI Engineering and Diatreme Resources.

Brisbane-based Diatreme is advancing the development of the Cyclone zircon project near the WA-South Australian border, and struck an MOU with ENFI to explore opportunities in September last year.

China Minmetals is one of the country’s largest state-owned enterprises involved in mining services, with more than ¥1.6 trillion ($314 billion) in total assets.

In January, Diatreme announced the MOU had progressed to two formal agreements, with ENFI to use its network among China’s state-owned enterprises and banking sectors to assist in sourcing project investment, offtake agreements and debt funding.

ENFI and Diatreme signed a consulting services agreement, with the Chinese engineering group to complete the Cyclone zircon project’s definitive feasibility study, including project costings, engineering studies and implementation planning.

Junior mining play Metalicity is progressing development of its Admiral Bay zinc project in the north-west of WA with the assistance of a Chinese state-owned enterprise.

Metalicity signed an MOU with China Non-Ferrous Metals early last year, and announced in January the completion of a detailed review into the technical and financial parameters of the Admiral Bay project.

China NFC, a subsidiary of China Minmetals, will complete a project study report on the project, a key document required to comply with financing requirements of Chinese banks.

Metalicity managing director Matt Gauci said the project study was anticipated to significantly reduce the capital and operating costs of the project, accelerate its development timeline and support a binding financing and development agreement.

“The positive review supporting the MOC with China NFC and combined with successful metallurgical test work supporting the MOU with China Minmetals, established a very strong framework for the feasibility, development, financing and offtake agreement with China’s largest and most credible engineering, resources, mining and metals groups in the zinc sector,” Mr Gauci said in a statement to the ASX.

If the mines all go ahead, they would add to a long history of China-backed developments in WA’s mining sector, which have made considerable contributions to the local economy.

Sinosteel’s Channar joint venture with global miner Rio Tinto has been well documented as a model of Australia-China business relations, with a 30-year history of mutually beneficial cooperation.

And while Sino Iron has been an expensive exercise for CITIC Pacific Mining, the Pilbara magnetite project in has the potential to deliver a similar impact.

Much of the focus on Sino Iron has been on its challenges – major cost blowouts and a lengthy court battle with Queensland businessman Clive Palmer, which culminated in the Supreme Court of Western Australia ordering CITIC to pay up to $US149 million in unpaid royalties late last year.

However, a Deloitte Access Economics report into the project released in December indicated Australia’s largest magnetite mine would deliver enormous value for WA.

The report estimated the mine would contribute more than $100 billion in export earnings for the state over its planned 40-year mine life, along with more than $8.7 billion in wages paid to WA workers.

More than $5 billion in royalties to the state government are expected to be paid over the life of the project, which employs more than 1,500 people directly, along with 1,100 full-time contractors.

CITIC is also expected to spend about $51 billion procuring WA goods and services for the mine in coming years, the report said.

Sino Iron last year achieved its production target of 16 million tonnes of magnetite concentrate, as the mine ramps up to its nameplate capacity,

The Deloitte report said CITIC’s investments also underpinned the development of new energy infrastructure in the Pilbara, including the Devil Creek gas processing hub and DBP Development Group’s proposed Tubridgi gas storage facility near Onslow.

CITIC Pacific Mining chief executive Chen Zeng said the company was proud to deliver such a considerable economic benefit through its operations.

“Our challenges are well known,” Mr Zeng said.

“We remain focused on doing everything we can to place Sino Iron on a financially stable footing, to ensure the project reaches its full potential for the benefit of all.

“We will only be able to achieve this through better partnerships.”

WA’s biggest home-grown iron ore miner, Fortescue Metals Group, also owes its success to its partnerships with Chinese state-owned enterprises.

Speaking at the Belt and Road Industrial and Commercial Alliance hosted by the Australia China Business Cooperation Forum in Perth in December, departing FMG chief executive Nev Power said the rapid development of the company into an iron ore powerhouse could not have occurred without collaboration with China.

Mr Power said FMG was founded as a concept in 2003, achieving first production of ore in 2008.

Today, FMG ships around 170 million tonnes of Pilbara iron ore to China every year, with nearly 1 billion tonnes of ore exported so far.

In total, FMG ships around 17 per cent of China’s seaborne iron ore needs, while Mr Power said procurement contracts covering major mining and rail equipment totalled more than $1 billion.

“We have focused very much in our marketing strategy to try and complement the supply that has come from domestic Chinese mines and from other seaborne producers,” Mr Power told the forum.

“China today produces around 50 per cent of the world’s steel and has been one of the fastest-growing steel producing countries in the world.

“Therefore, we have worked very closely with a very wide range of customers throughout the Chinese steel industry to identify their needs and to produce the iron ore to meet those needs.

“In particular, we have focused very much on high-value products, which have very low impurities and therefore very low emissions when they are consumed in the steel mills.

“This strongly supports China’s move towards improved air quality and improved efficiency across all of their industries, including the steel industry.”

Chinese state-owned enterprise Hunan Valin Steel was an early investor in FMG, taking a 15 per cent equity stake in the company shortly after it was founded.

“This has been acclaimed as one of the most successful international investments by a Chinese SOE steel company,” Mr Power said.

“This has been a great win-win relationship because Hunan Valin have been a major customer and provide trials of our products in addition to being a major investor in the company.”

It is those win-win relationships that have been the key to FMG’s China success, Mr Power said.

“We think that it is most important that both sides are benefiting from the relationship, because any relationship that is one-sided can’t last very long,” he said.

“We have also embraced a very broad industry and government engagement throughout China … to make sure that a broader section of the economy understood our business and how we were trying to approach China.

“I would say our key success has been in the level of engagement that we’ve had with the Chinese steel industry, but more broadly with the Chinese manufacturing industry and with the government sector in China.”

Mr Power expected China’s Belt and Road Initiative to provide considerable new opportunities for Australia-China business development, particularly in the steel manufacturing and iron ore industries.

“The Belt and Road project will accelerate the growth of these economies which trade with China to ensure that the demand for iron ore and raw materials is going to be needed for decades to come,” he said.

Source: AUSTRALIA CHINA BUSINESS REVIEW