Aquila shelves $7b iron ore project
Shares in Aquila, 14 per cent owned by Chinese steelmaker Baoshan Iron & Steel, fell as much as 10 per cent on Monday before closing 12¢, or 3.8 per cent, lower at $3.
The dispute, between Aquila and its partners AMCI, a mining investment house, and South Korean steel group Posco, began when they effectively froze the project in September when iron ore prices plunged to their lowest levels since the financial crisis, rendering the project unprofitable at the time.
Iron ore prices have since rebounded strongly, but the dispute was sent into arbitration.
Arbitration was due to begin on February 18, but Aquila said on Monday it would continue the suspension for the rest of this financial year.
"Aquila will continue to focus its efforts on how best to progress the project," chairman Tony Poli, who owns 29 per cent of the company, said in a statement to the stock exchange.
Aquila had won environmental approval just three days earlier to develop the key Anketell Port. But the West Australian government has said it will not approve construction of the port until it is certain the project has enough funds to go ahead.
Aquila has been selling "non-core" assets to build up funding for the West Pilbara project, but a run-up in costs is expected to see its contribution run into the billions.
Morningstar Resources analyst Gareth James said he had always been doubtful about the project proceeding following a $1.4 billion capital cost blowout in October.
He said production remained years away, with no revenue stream for the company in the interim.
"Even if they did resolve the budget dispute with the joint venture partner, even if they did find the billions of dollars required to fund the project, you then have the massive risk of development, during which time costs could blow out further," Mr James said.
"We're of the view that this project is very unlikely to happen."
The West Pilbara joint venture, which plans to export 30 million tonnes of iron ore a year, is 50 per cent owned by Aquila, 25.5 per cent by AMCI and 24.5 per cent by Posco.
Frequently Asked Questions about this Article…
Aquila suspended the West Pilbara project because of a funding dispute with its joint-venture partners AMCI and South Korea’s Posco. The partners effectively froze the project in September when iron ore prices plunged and the disagreement was escalated to arbitration, so Aquila said it would keep the project on hold for the rest of the financial year.
Shares in Aquila fell sharply on the news — they dropped as much as 10% intraday and finished the trading day down 12 cents, or about 3.8%, at $3 per share.
The West Pilbara joint venture is 50% owned by Aquila, 25.5% by AMCI (a mining investment house) and 24.5% by Posco (the South Korean steel group). Separately, Chinese steelmaker Baoshan Iron & Steel owns about 14% of Aquila, and chairman Tony Poli owns around 29% of the company.
The funding dispute was sent to arbitration, which was due to begin on February 18. Despite that, Aquila announced it would continue the suspension of the project for the rest of the current financial year, delaying any immediate progress until the dispute and funding issues are resolved.
Aquila won environmental approval to develop the key Anketell Port just days before the suspension. However, the Western Australian government has said it will not approve port construction until it’s satisfied the project has enough funding to proceed, so construction cannot start while funding remains uncertain.
Aquila has been selling ‘non-core’ assets to build up funding for the project, but a run-up in costs is expected to push its contribution into the billions. The project also suffered a reported $1.4 billion capital cost blowout in October, increasing the chance of further cost overruns and making funding more difficult.
The West Pilbara joint venture planned to export about 30 million tonnes of iron ore a year if the project went ahead.
Morningstar Resources analyst Gareth James expressed serious doubts about the project after the $1.4 billion cost blowout, saying production is still years away and the company has no interim revenue stream. Everyday investors should watch the outcome of the arbitration, any confirmed funding commitments, further cost estimates, and whether the WA government lifts its funding condition on port construction.
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