Mitsubishi Corp. (8058) and Murchison Metals Ltd. (MMX) may have to pay 32 percent more to build the Oakajee port and rail project and the Jack Hills iron ore mine in Australia, hampering Murchison from funding its share.
Oakajee may cost A$5.94 billion ($6.4 billion) to build, according to a study released today by Murchison, the same day the Perth-based company announced the resignation of Executive Director Paul Kopejtka. The Jack Hills iron ore project, also an equal joint venture with Mitsubishi, may cost A$3.7 billion.
Murchison shares fell 2 percent in Sydney. It earlier plunged the most in more than six years on concern the cost increases may make rival projects more likely to be developed. While studies show both projects are viable, they have yet to receive board approval, Murchison said.
“Funding of these projects will be more painful for the companies and there won’t be a raft of cheap offers of finance coming their way,” Peter Strachan, who heads Perth-based independent advisory firm StockAnalysis, said by phone. “Other projects may look more attractive.”
Murchison fell to 75 cents at the 4:10 p.m. close of Sydney trading. It earlier fell as much as 21 percent to 60.5 cents, the biggest slide since April 6, 2005. Mitsubishi rose 1.1 percent to 2,0657 yen in Tokyo.
Kopejtka will be replaced in the short term by Trevor Matthews who was today named chief operating officer, Murchison said.
“The board thanks Paul for his work in developing Murchison’s vision for the mid-west region to a critical milestone,” new Chairman Ken Scott-Mackenzie said in the statement. “Receipt of the feasibility studies is a natural juncture for Paul to transition from his role of executive chairman.”
Murchison is unlikely to be able to afford to pay for its share of the two projects, Managing Director Greg Martin said on a conference call.
The study also showed Jack Hills will produce 22 million metric tons of iron ore concentrate, less than the originally planned 35 million tons.
The Oakajee project also suffered a blow after foundation partner Sinosteel Midwest Corp., a unit of Sinosteel Corp., said last month it would halt work on the A$2 billion Weld Range iron ore project, due to ongoing delays in the development of the port and rail lines.
“This indicates that cost blowouts are going to become more of an issue across what’s a very competitive industry,” Lucinda Chan, division director and head of Asian business at Macquarie Private Wealth in Sydney, said by phone.
Murchison and Mitsubishi are seeking to develop the Oakajee port, with a planned export capacity of 45 million tons to open up the Mid-West region of Western Australia for iron ore exports to supply steel mills in Japan, South Korea and China. The World Steel Association said on April 18 that steel demand may increase by 6 percent next year.
Oakajee port in August signed initial agreements with potential customers of the project including Karara Mining Ltd., a venture between Gindalbie Metals Ltd. (GBG) and China’s Anshan Iron & Steel Group and Sinosteel Midwest.
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