Apr 17 2014, 3:23am CDT | by Forbes
Encounters between China and Japan can be bruising, and sometimes bloody affairs, but on a remote western Australian beach there is a silent confrontation being played out between Asia’s superpowers. Although Japan was on top a few years ago, today China is the one calling the shots.
The front-line, which was also once a prize sought by Taiwan, is a proposed $6 billion port and associated railway development called Oakajee which has the potential to become one of the major suppliers of Australian raw materials to Asia, particularly iron ore.
First proposed more than 30 years ago as a way of providing access to markets for marooned iron ore deposits in the Murchison (or Mid West) region of Western Australian, Oakajee has never moved off the drawing board thanks to sharp falls in commodity prices, financial crises, or other commercial pressures.
Last week, Oakajee was resurrected in an official way during high-profile trade missions to China by a number of Australian politicians, including the country’s Prime Minister, Tony Abbott, and the Premier of Western Australia, Colin Barnett — and in an unofficial way by an opportunistic, and very small Australian company called Padbury Mining.
At the unofficial level, Padbury announced to the Australian stock exchange that it had arranged a $6 billion equity injection to fund Oakajee, a surprising claim for a company valued on the exchange at less than $100 million, and one which led to a suspension in the trading of the company’s shares, albeit after the company’s share price had doubled.
Barnett was quick to play down Padbury’s possible participation which has attracted the attention of stock exchange regulators, while repeating his comments about Citic Pacific being the front-runner in the latest revival of Oakajee.
Market Access For Stranded Assets
While a $6 billion rail and port development could create export opportunities for stranded iron ore projects, and would be a relatively easy lift for a company the size of Citic Pacific, there are reasons to question whether the project will proceed.
The first is at a company level because Citic Pacific,has suffered an embarrassing and expensive cost blow-out and completion delay at its Sino Iron project about 500 miles north of Oakajee. Originally budgeted to cost $2.5 billion and be in production four years ago Sino Iron has only just started shipment of part-processed iron ore while the budget has exploded to $8 billion.
The second is at the project level because Oakajee was originally a development back by Taiwan’s An Feng steel group and the Australian company, Kingstream Mining, until the Asian financial crisis of 1997 blew everyone involved off course.
A decade ago, Oakajee reappeared as a proposal championed by another Australian company, Murchison Metals, which had declined an opportunity to have a Chinese partner in the development, opting instead for a Japanese partner, Mitsubishi Corporation, a deal which collapsed after the 2008 global financial crisis.
China, which played second fiddle to Taiwan in the 1990s and Japan about six years ago, has now been invited to take the lead by senior Australian politicians and without any obvious Australian corporate involvement, which might explain why Padbury thought it could crash the party.
For anyone who believes in the old saying about “third-time lucky” it is possible that Oakajee might finally make it off the drawing board with the port linked by 350 miles of railway to a series of iron ore mines, most of which have Chinese involvement, dedicated to supplying material to Chinese steel mills.
However, given that one of those potential projects, Jack Hills, still has Japan’s Mitsubishi Corporation as a part owner there is the potential for some interesting bargaining between Chinese and Japanese interests, with both sides keen to avoid losing “face” over what has been a difficult project to develop.
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