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Murchison Metals Limited

A Big Day for Australia’s Midwest

As a well known company on the brink of an array of advances, Murchison Metals Limited (ASX:MMX) (PINK:MUMTF) is rarely out of the spotlight and with two bankable feasibility studies (BFS), potential mine expansion and infrastructure development, sustaining governmental support and significant financing all due within the coming year, that doesn’t look set to change.

“We’re a matter of weeks—about four to six—from completing our Bankable Feasibility Studies and publishing the results,” Trevor Matthews, CEO says.

“From there it’s a case of moving through with the bank group to get our financing arrangements in place by Q4 this year. Then by the first quarter of 2012 Mitsubishi and Murchison are scheduled to make a project go-ahead decision—a final investment decision—to proceed with the development of the port and rail project through our joint venture Oakajee Port and Rail (OPR) and also the Jack Hills Expansion Project (JHEP) held within Crosslands Resources Ltd. again jointly owned by Mitsubishi and Murchison.”

It has been a year since Murchison last graced our pages, and latest reports state that financing agreement discussions on its Oakajee port and rail projects between the miner and its partner, Mitsubishi, are “well advanced.” As Matthews says of the company’s plans to commence exports from the project in 2015, “it’ll be a very big day for the Midwest region when we do that,” and with progress on track for the JHEP too, the past year spent firming up engineering and commercial agreements (and battling some seriously tricky bouts of weather) is braced to pay off.

Progress at Jack Hills

Mining activity taking place in the Midwest today continues to increase, and Matthews says that Murchison, with its publically announced federal and state government budget allocation of a combined $678 million for the Oakajee port, has begun talks with neighbouring miners as the industry continues to eye what is on offer.

“OPR has begun more detailed negotiations with two other miners in the region as well as Crosslands. One of these is Sinosteel-Midwest which owns the Weld Range project and also the Karara project which is a joint project between Ansteel and Gindalbie Metals,” he explains.

“There’s a pretty interesting combination of groups in the region with Mitsubishi as our joint venture partner and also Posco as Murchison’s major shareholder one of the biggest global steel producers, from South Korea. Then there are also the two Chinese state-owned entities and a number of other parties actively involved in the Midwest region.”

Murchison’s Jack Hills project, which has exported more than 6 million tonnes of direct shipping ore (DSO) since February 2007, remains, as Matthews said a year ago, on track to become one of the Top 10 iron ore mines in the world when it is up and running. The company is looking to increase its current annual capacity of approximately 1.8 million tonnes to approximately 25 million tonnes over an estimated current mine life of 35 years.

“That’s still one of the key elements of our business plans with Mitsubishi going forward,” Matthews says.
“In the past we have spoken about 25-35mtpa (million tonnes per annum), and now we’ve settled at 25mtpa with plans for an expansion after a period of time to add another 10 million tonnes of annual production capacity.”

The miner resumed operations on site in mid-March, after what Matthews conservatively describes as “some significant weather events here in Australia,” in reference to the two cyclones which became low pressure systems and soaked the region in both December and February. Matthews honestly says that around four to six weeks of production and three shipments of iron ore were missed in that period, but haulage has recommenced and the mine is open again.

“We’re now moving back into full production and shipping between two and three shipments of iron ore on average per month. That will continue on into the first quarter of next year as per the current plan,” he says.

“That’s when we plan to make the final investment decision and start construction of the mine expansion.

We’ll be deciding about the small scale operation then whether to continue to operate it or focusing on expansion and discontinuing stage one production.”

Developments have been made at the legislative level too, where a recent ruling by the Commonwealth Department of Sustainability, Environment, Water, Population and Communities has declared that the project area does not fall under a specific level of greater control under the Protection and Biodiversity Conservation Act.

“We’re still progressing with our state environmental approval, but we’re confident of getting that in place for the Jack Hills project expansion by the third quarter of this year. We’re in good shape to see both environmental and native title agreements in the next few months,” Matthews explains.

“And in the Midwest not only to we have an infrastructure solution and the ability to expand the Jack Hills project, but we can provide a transport solution for other companies in the region.”

For the Oakajee development, further infrastructural approvals and advancements are also underway.

On track at Oakajee

Matthews says that the Environmental Protection Agency (EPA) has recommended the port and rail developments for approval under the Environmental Protection Act to the Minister of the Environment of Western Australia subject to environmental conditions.

“That was a significant step forward in April and now all that is required for completing the environmental processes for the port and rail is the Minister’s consent on the back of the recommendation,” he says.

“We expect that environmental approvals for the port and rail development will be in place soon certainly by the third quarter.”

Murchison continues to target initial construction in the first quarter of 2015, and along with partner Mitsubishi, the team are considering early works commitments in the fourth quarter of this year. On the back of making progress with approvals processes, getting all of the necessary funding in place with banks and for the company’s equity funding, Murchison and Mitsubishi will be able to start some early commitments to order equipment and put some camps, roads and other construction related infrastructure on the ground in readiness for early 2012 when it makes to make the final investment decision.

“While we’ve had delays with the project, and the reality is that particularly for the size project we’re talking about—constructing 570 kilometres of heavy haul rail and a new greenfields port development with a development cost in excess of $5 billion for both assets, and a major mine expansion that will cost in the order of billions of dollars—some delays in our progress shouldn’t be seen as an unusual outcome,” Matthews highlights.

“I think that projects of this size and complexity will be subject to delays to get through to a construction start given the scale, number of approvals, financing requirements and the number of other parties involved.”
The Oakajee project’s potential to generate an infrastructure solution for the Midwest and expand operations at Jack Hill has been clearly defined, and Matthews also highlights that its commencement marks the provision of the same for the Midwest region. Unlike smaller miners embattled by conglomerate hold over port and rail access in the Pilbara, those operating in the Midwest are arriving at a time where collaboration is on the horizon. As a result, Murchison’s strategic goals today not only signal future progress for the company, but for other companies looking at mine developments and wider export industries for the region.

A big day for the Midwest approaches

Forming the basis for financing and final investment decisions, Murchison’s feasibility studies underway at Oakajee and Jack Hills are the company’s primary concern for the coming weeks.

“In the third quarter, we’ll focus on the completion of all of the environmental approvals and a number of other indigenous approvals certainly a key part of progressing with the financing and project developments is getting access for the start of construction,” Matthews says.

“Moving through to the fourth quarter, getting our offers of finance from the banking syndicate and Mitsubishi and Murchison completing our equity funding arrangements to put in place all of the funding is a key activity so that we can make the final investment decision in Q1 2012.”

On track and edging closer towards commencing exports in the Midwest region from 2015, that big day Matthews speaks of is quickly approaching. There have been delays—wholly expected in advancing a port and rail and mine expansion worth billions of dollars—and despite lost time, everything remains on track. Local government support, permits, partnerships and community support continue to be strong, and rightly so, given quite how much is on offer for the Midwest region.