Belt and Road can open up Mid West

Belt and Road can open up Mid West

Wed, 14/02/2018 - 09:13
Oakajee impression

China's Belt and Road initiative has the potential to revive the proposed Oakajee port project near Geraldton. Image: Oakajee Port and Rail

In May last year, China’s, President Xi Jinping, aptly labelled the Belt and Road Initiative as the “project of the century” that would benefit people across the world.

There is nothing more important to Australia and, in particular Western Australia, than the trajectory of China, and we need to make sure we do not waste this historic opportunity.

China’s open and inclusive Belt and Road vision is a strategic priority and Australia is one of the countries best placed to offer significant economic infrastructure projects of genuine substance in a destination of low sovereign risk.

Belt and Road provides an impetus to enable us to finally develop large, exciting infrastructure projects that we have long desired but have historically been unable to deliver. 

Projects like the port, rail, pipeline and downstream processing economic infrastructure plan based around a new port at Oakajee, 22 kilometres north of Geraldton.

This is a project that can open up the Mid West of WA. It is one ideally suited to become a flagship for Sino-Australian collaboration under Belt and Road. 

It has been delayed as a result of past bad decisions. But now is the time to present a China-led solution to take advantage of prevailing favourable conditions for the construction of major projects.

The Mid West, which used to be known as the Murchison, has a total area of almost 500,000 square kilometres. It is larger in size than each of Japan, Korea and Germany.

From Australia’s perspective, the Mid West is underdeveloped, being hindered by the lack of a deepwater port. China sees the region as a potentially huge magnetite iron ore province where it can play a leading role.

There is a commonly held perception in Australia the iron ore story is all about hematite iron ore. There is a false impression magnetite iron ore is a new, risky industry that investors should avoid. There are good reasons why there are strong magnetite industries in the US, Russia, China and the Middle East.

The challenges of China’s initial foray into magnetite projects in WA have been well documented, but lessons have been learned and the underlying benefits and appeal of magnetite remain intact.

There are many huge-scale magnetite projects awaiting development, whereas the big hematite projects to be developed are largely located in countries with high levels of sovereign risk.

Upgraded magnetite contains lower levels of contaminants, which is reflected in significantly improved performance in the furnaces of steelmakers. CO2 emissions are also reduced. 

This is important to the Chinese government and would suggest the restructure of iron ore pricing that has emerged over the past couple of years is structural and long lasting.

Magnetite iron can achieve prices more than 200 per cent higher than lower-grade iron ore that is being produced by a number of Australian operators. 

This translates into magnetite producers being able to support a significantly higher capital and operating cost than DSO (direct shipping ore) operations.

Chinese mine developers in the Mid West have only been offered one solution, proposed by Japanese company Mitsubishi. The Japan solution was politically unappealing to Chinese companies and economically not feasible because:

• China’s perception that Mitsubishi sought to subsidise its Jack Hills mine, 400 kilometres north-east of Geraldton.

• The port and rail design was seen to be over-engineered and unnecessarily costly.

• Mitsubishi sought to underwrite the project solely off foundation customer supply contracts.

Many potential innovative solutions have emerged to significantly reduce capital costs, including a jetty rather than a breakwater and dredging program, transhipment options and a network of large slurry pipelines.

There are many reasons for China to partner with WA in the Mid West:

• China has already invested massively in mining projects like Sinsoteel’s Weld Range project and Ansteel’s Karara project.

• China is the end customer for the vast majority of expected production.

• China has the financial capacity to fund project costs.

• China has conducted extensive studies into the region.

• China has vast experience in major infrastructure projects.

While the federal government may be dragging its feet more than we would like in endorsing Belt and Road, the opportunity for Australian business to step up and lead the way in unlocking the attractive trade and investment opportunities afforded by Belt and Road is very clear.

Together we can make it happen.

• Duncan Calder is past national and WA president – Australia China Business Council, and managing director of Contour Capital Pty Ltd.