Murchison Metals Limited

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In 1966, the first shipment of iron ore in Australia made its way out from the port of Geraldton, and into the mid-west region of Western Australia. If only those early miners had known how the landscape would be set to drastically change today, with the planned development of the Oakajee deepwater port and rail system, just 25 kilometres north of Geraldton. Today the mid-west is teetering on the brink of a new mining boom as Oakajee represents the cornerstone for the new infrastructure under development; infrastructure to house what will, down the line, be in excess of 50 million tonnes per annum in iron ore exports, bringing its own set of challenging logistical requirements.

At the very heart of this new mining hub is Murchison Metals Limited, a junior iron ore miner that really holds the reins to making these colossal new developments a reality. Just two weeks after Murchison listed on the Australian Stock Exchange in 2005, Trevor Matthews, Managing Director, came on board. In the five years that have passed, the company has been extremely busy.

“There was originally a group of three resource professionals, including Paul Kopejtka the current Executive Chairman, who acquired the mining tenements and entered into transactions to vend them into a company that became Murchison,” Matthews says.

From 2004 to early 2005, these founders perceived the growth appearing from Chinese demand for bulk materials and other commodities. Foreseeing great opportunities to develop particular assets in the mid-west, the strategic goals and future of Murchison were developed.

Murchison, Mitsubishi and more

Before we delve into the iron ore tenements that Murchison listed, it is important to consider that they are located in what is not traditionally a large iron ore exporting region, owing to the lack of infrastructure to support such mining operations.

“There’s no heavy-haul rail system and there’s no deepwater port capable of handling the larger cape class vessels. We are in an area where we have basically had to go through the study process to develop the mine and in addition to that we have also had to develop a transport solution,” Matthews says.

“Bulk commodities are more about logistics than they are about mining and processing, so how you get your ore in large quantities from a fairly remote mine to a port in an efficient and cost effective manner is an important part of project planning. Certainly, the development of the mine, and and a new rail and port facility are key parts of what we’ve been working on for the last five years.”

Murchison’s story begins with its Jack Hills iron ore project—380 kilometres north east from the port of Geraldton and jointly owned by Murchison and Mitsubishi Development Pty Ltd, through a joint venture company called, Crosslands Resources. Mistubishi Development is a 100 per cent subsidiary of Mitsubishi Corporation, Japan’s largest general trading company. Prior to Mitsubishi’s involvement, Murchison developed and commissioned a small scale mine at Jack Hills in just 18 months from listing. “We had our first shipment on February 1, of 2007, from that stage one operation. The mine is still operating and exporting pretty close to two million tonnes of iron ore per annum at the moment,” he says.

During the development phase of the Stage 1 project, the Company continued to work on its bankable feasibility studies for the expansion of the Jack Hills mine, the new Oakajee port and associated rail projects, when Mitsubishi approached Murchison to consider entering into a joint venture in late 2006.
“We spend about eight months negotiating the terms of the joint venture and in mid-2007 we announced the formation of two joint ventures,” Matthews says, of the projects which would become Crosslands and Oakajee Port and Rail (OPR). “We announced the new structure when we executed an in-principle agreement for the joint ventures, then we spent the next three months negotiating 33 agreements that we executed in September 2007.”

Mitsubishi committed a first payment of A$150 million, which will be followed with a second larger payment once the Jack Hills Expansion Project and infrastructure bankable feasibility studies are completed towards the end of 2010.

“The Jack Hills project is being expanded from two million tonnes per annum to somewhere between 25 to 35 million tonnes per annum capacity,” Matthews says. “Recently we announced an upgrade in our JORC mineral resources to three billion tonnes which certainly puts more than enough ore in place to be able to develop and expand to the planned annual production rates,” he says.

Once the bankable feasibility study is completed, Mitsubishi will effectively pay Murchison half of the value of the Jack Hills expansion project for their 50 per cent interest in the mine, port and rail assets. The pair also has another agreement under this joint venture which means that Mitsubishi will manage the arranging of the debt financing required to develop these projects.

“They’ll provide an equity payment to Murchison and they’ll provide their own share of the equity funds needed in addition to the debt financing which in total will provide the billions of dollars of capital expenditure required to expand the mine and develop the new infrastructure,” Matthews says.

Mitsubishi assists in the marketing, providing market intelligence and support services for Crosslands and Matthews explains that this partnership is basically an alliance between the companies.

“It covers the whole mid-west region in Western Australia, so any iron ore or infrastructure opportunities in a fairly large area, defined as a 650 kilometre radius from the Oakajee port through WA’s mid-west region will be developed through our joint ventures,” he explains.

With Murchison’s strategic position in the Mid-west today, the company is set to benefit from both the infrastructure projects and the future expanded iron ore operations.

Murchison’s strategic position in the mid-west

It is a lot to comprehend, but as Matthews explains, the OPR joint venture with Mitsubishi, which in turn acts as an enabler for the Crosslands partnership, has also garnered support from the state and federal governments. Between them they have agreed to fund A$678 million of the port development costs, adding state financing to support the development of the infrastructure for the entire region and offering significant project facilitation.

“The Western Australian Premier has described the Oakajee port development as the single most important infrastructure development for Western Australia for the next 50 years,” Matthews says. “When you think of all the big LNG and mining projects under development in WA, this clearly indicates the importance the government is placing on the development of the mid-west region. It’s pretty good to have the Premier as your biggest advocate and he’s had a long association with the Oakajee project dating back to the 90s,” he says.

It is clear that Oakajee is a big project. Matthews says that OPR’s rail infrastructure spans 570 kilometres.

“And that’s just our rail network, let alone rail components being developed in the south by others and connecting to OPR’s network. And of course a completely new greenfields port development too,” he points out.

Demand for transport capacity is certainly not an issue, with the Jack Hills project tonnages mentioned previously, Anshan Iron and Steel of China and the Australian company Gindalbie Metals joint venture, Karara; their 50/50 joint venture has commenced construction of an eight to 10 million tonnes per annum mine and processing plant; and Sinosteel’s Weld Range project, just 100 kilometres south of Jack Hills, plans to have a bankable feasibility study for a 15 million tonnes per annum mine completed later this year. There are other proposed projects to consider too.

“Recently, there were a total of 12 companies who put in nominations for capacity tonnages to utilise all or part of the OPR rail development and export out of the Oakajee port with total requirements for very significant tonnages to be exported,” Matthews says. “There’s certainly sufficient demand to justify the Oakajee port and rail project,” he adds.

And unlike the Pilbara, where as an established iron ore mining region the major world players have a hold over most juniors in terms of infrastructure access, this new mid-west region offers the promise of an access regime to allow miners to co-ordinate their development plans with a dedicated transport service provider in OPR.

Mitsubishi-backing and Murchison’s people focus
Matthews may be right when he says that Murchison is in the best strategic position in the mid-west, but he is also realistic when speaking of the company’s early understanding that to commercially pursue Oakajee port and rail project, as well as in turn the Jack Hills mine expansion, required a large collaborator. This is where Mitsubishi proves to be the perfect alliance partner.

“It’s a very all encompassing partnership and that was a key part to Murchison’s strategy moving forward because these are large scale projects,” Matthews explains. “They require a lot of funding and you really need a large partner to be able to develop these projects. It’s also been instrumental to our getting the rights that we have for infrastructure,” he says.

This partnership won over the government during the selection process for the preferred developer of the Oakajee Port conducted in 2008. The OPR joint venture was up against another syndicate, and in mid-2008, it was announced that the Murchison and Mitsubishi alliance had been successful in each of the five key selection criteria identified within the process. OPR was awarded the exclusive rights to develop the port, and after nine months of negotiation with the state, the partnership received the exclusive northern rail rights too.

“This is a huge responsibility as all the other mid-west miners are basically reliant on us and our joint venture partner Mitsubishi in terms of their ability to get to the market and develop their own iron ore assets,” Matthews says.

“This is going to be the second largest iron ore exporting province in Australia after the Pilbara, and probably one of the more significant iron ore producing regions in the world when you look at the projects being developed on the back of the infrastructure that Murchison and Mitsubishi are putting in place,” he adds.

Through Crosslands and OPR, Murchison continues to work tirelessly towards successfully executing the projects and 2010 will be a pivotal year.
“We plan to complete a number of processes to get to completion of bankable feasibility studies late this year and get through to financial close in the first quarter of 2011, then start construction which will take approximately 30 months,” Matthews says. “In the second half of 2013 to early 2014 we should be commissioning iron ore exports,” he says.

It’s a seemingly insurmountable task to have been undertaken in only five years, but Matthews says that none of this could have been done without the right people.

“Paul and I have built a team of experienced resource and infrastructure professionals within Murchison and in addition we have highly capable management teams within OPR and Crosslands and of course the significant support and assistance of Mitsubishi,” Matthews says. There are of course a lot of stakeholders to consider too and the company has done just that.

“OPR, Crosslands and the joint venture partners are working very hard to make sure we listen to and manage various stakeholder issues as we move forward and develop this project,” Matthews says. “These developments are very positive for the local and broader communities and they have a high level of acceptance,” he says.

It’s also gained overwhelming interest from the mining community which both serves to support the OPR demand and works in Murchison’s favour.

“There are a number of mining projects which will become customers initially or in the future, so the port and rail development is, to us, really important as it allows us to have an interest in virtually every tonne of iron ore that gets exported out of this region in addition to assisting the development of the expanded Jack Hills mine which will be one of the top ten iron ore mines in the world in terms of size once it’s up and running,”

“This calendar year is very much a watershed year for the company,” he says. Expect big things from Murchison, its joint venture projects and the future of the mid-west region of Australia. You will not be disappointed.

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