This project has failed and the following information is provided for historical interest.
An entrepreneurial group once obtained the rights to iron ore deposits in the Tallering Peak area at a very low cost for reasons of its low opportunity value. These were was cheap because of the high cost infrastructure requirement for being isolated without transport and port facilities.
The operators believed production would be be in the "lowest quartile of world production costs" and therefore would be technically efficient but they faced high overhead cost penalties and so were economically inefficient. Reflecting regional politics (National Party promoted that supports high cost regional development) the venturers obtained government assistance to offset those high infrastructure costs (to pay for the economic cost being the reason the deposits were available cheaply.
Note. The low cost nature of the deposits was made evident in April 2002 when, on failure of the venture, the deposits were acquired for just US$2.3 million by Mt Gibson Iron venturers a cost which included access to market and technology data for downstream processing valued at $12million. The Government of the state is understood to have outlaid US$3million in addition to its internal activities.
The endeavour was evolving at a time when BHP, as a large iron ore producer deferred the second stage of their DRI iron project, and struggling to justify continued operation. There were also other steel producers intent on investing.
Rationale for government support
Driven by regional interests, (ie. a concentrated benefit paid for by the wider population), the West Australian (Court) government therefore not only offered to meet the economic costs of the required railways, but a large part of the cost to construct port facilities at Oakajee. Even if the draw on public moneys could somehow be justified, there is the question of other projects without the economic cost penalty, notably those nearer the iron ore and gas in the north of the state and therefore would have promoted a misallocation of resources.
Though the government passed an act of parliament to provide funding for this project despite having all the hallmarks of a failed petrochemical project in terms of location penalties, it failed. That petrochemical project, PICL too had low operating costs and a high location penalty for being distant from the gas and for which the government actually funded $400 million.
These two projects therefore represents a string of failed projects funded by government agencies. in this state.
The project involved a gas line requiring up to 340 terajoules per day (stage 2 - 170 terajoules at stage 1). (A typical production cost profile for DRI is about one-third energy and one-third ore). The project would incur a gas tariff penalty to bring gas by pipeline from the Pilbara (around A$0.80 per gigajoule, say 40 per cent cost increase).
Adding infrastructure costs (including that which is publicly paid for including the port and roads) to the pipeline costs, will raise the cost of operating at Geraldton (perhaps A$150m per year) above being located at say Port Hedland which is closer to the gas. With the DRI price around A$200 per tonne, the penalty is therefore estimated by us at around 12 to 14 per cent.
Details on web
An Feng Kingstream (80 per cent An Feng a Taiwanese steel company, and 20 per cent Kingstream Resources a publicly listed Australian resource company) is planning a steel project, called Mid West Iron and Steel, to be located at Oakajee, 25 km north of Geraldton. The managing director is Nik Zuks with Ken Court as Chairman. In November 1998, An Feng withdrew leaving the venture in Australian hands (without a partner).
The process will use the HYL III technology provided by German company Ferrostaal and pelletising by Swedish Svedala.
|The project plans to produce 2.4 m tonnes of steel slab most to be shipped to Taiwan for hot rolling into coil at AFK's plant.|
|Construction by Mannesmann Demag to head consortium as well as Ferrostaal and Svedala to cost no more than US$950 million.|
|Project financing including by off-take agreement of 400 000 tonnes of steel slab.|
It will use ore from Tallering Peak deposit and the Koolanooka and Blue
|The ore will be railed to Oakajee for pelletisation, processed into direct reduced iron (HYL III or Midrex) and converted to steel slab in electric arc furnaces.|
|Gas will be provided from the north west gas line. Some 340 terajoules per day of gas will be required to produce 2.4 million tonnes of steel. The company has contracted for 795 petajoules of gas over 15 years from Apache Energy with option for further 530 petajoules if required.|
A deepwater port at Oakajee will be underwritten by the West Australian government that will also provide road, rail and help with the port and other infrastructure. It was announced the cost of the port may be close to $300m (without interest costs). The Government is anticipated to fund it and then sell the port after 10 years. Land acquisition negotiations have been authorised.
In February 1997, a US firm Pacific Gas and Electricity offered to build a stand-alone A$1bn gasline to the south west of the state - a status that would reduce the value of the AlintaGas line. Also occuring at this time is a proposed integrated steel plant by Kingstream Resources at Geraldton some 400 km north of Perth that will initially require 170 terajoules of gas per day. According to the West Australian (26 February 1997), AlintaGas has bid A$0.62 per gigajoule (pipeline overhead only) with bids from other sources below A$0.60. The Australian Competition and Consumer Commission ruled in 1998 that the arrangement to supply gas as "anti-competitive" as it would discourage the building of a second competing Dampier to Bunbury gas line.
Australian United Steel Industry Ltd (AUSI) is proposing a DRI plant at Cape Lambert (south of Burrup Peninsula) to cost US$1.5bn. It proposes to produce 4 million tonnes by year 2001. Hamersley Iron (Rio Tinto subsidiary) will provide iron fines for pelletising by AUSI.