SA port project precedes a storm of iron ore export activity

SA juniors could be exporting 10million tonnes annually from Port Bonython by 2010.

SA juniors could be exporting 10million tonnes annually from Port Bonython by 2010.

ONESTEEL did what big companies do back in December 2007 when it slammed the door on the ambitions of a bunch of South Australian iron ore juniors to leverage off OneSteel's export facilities at Whyalla.

The reluctance of the iron ore-steel producer to give the juniors a leg up was of the variety we've seen from Rio Tinto and BHP Billiton in the Pilbara. But as Andrew Forrest's Fortescue has shown, you can't lock competitors out forever when the prize is big enough.

And so it is in South Australia, a place that needs to encourage all the mining activity it can get because there ain't much else happening there.

Some time soon the Department of Transport, Energy and Infrastructure will confer preferred tender status on one of the groups or consortiums that have put their hands up to build a common user deepwater port at Port Bonython, near the northern end of Spencer Gulf and 25kilometres from Whyalla.

Santos has used Port Bonython for the export of crude oil and liquids since 1984. It is also where BHP has plans to build a desalination plant to meet the huge water demands of an expanded Olympic Dam, and perhaps export some copper-uranium concentrates to China.

But Garimpeiro's interest here is in the SA junior iron ore groups that between them have plans to be exporting 10million tonnes of iron ore annually from 2010 and 20 million tonnes from 2015.

At a blended iron price of $100 a tonne, that represents potential annual export revenue of $1-$2 billion.

That's the equivalent of 28,000-56,000 Mitsubishi 380s being built year-in, year-out in SA.

Not that Mitsubishi got anywhere near that sales rate before killing off the 380.

But it does give an idea of why the SA Government is super keen on the resources industry filling the void left by SA's manufacturing demise.

Bob Duffin's Western Plains Resources has been playing a lead role in getting the Port Bonython export port up and running.

So much so that WPG is part of one of the consortiums in the tender to build the facility.

Not that WPG intends being a port owner. It just wants to make sure one gets built.

WPG has some good reasons for that.

It wants to bring its Peculiar Knob direct shipping iron ore project into production as soon as possible, at an annual rate of 3 million tonnes.

About a year after the start of Peculiar Knob, the plan is to bring the nearby Buzzard and Tui deposits into production at an annual rate of 1.5million tonnes.

At the all-up rate, WPG's direct shipping iron ore project would have an initial mine life of 10 years.

Because the Port Bonython port option will take time to unfold, WPG could start earlier, moving by rail about 1 million tonnes-a-year over the 2200 kilometres to Darwin for a year or so.

Then it could switch to Port Bonython (600 kilometres away) at the higher rate when that facility becomes available.

The recent bumper increase in iron ore prices means that the Darwin option would still leave a cash margin of about $25 a tonne.

For a company that on Friday that was valued at all of $87 million (94 a share), it wouldn't be a bad start.

But assuming the Port Bonython option goes live by late 2010, the cash margin would be more like $50-$60 a tonne on eventual annual output of 4.5 million tonnes a year.

Piers Reynolds at Veritas Securities reckons WPG's earnings before interest, tax, depreciation and amortisation (EBITDA) could be $22.3 million in the 2010 financial year before scooting off to $166.1million in 2011.

It is little wonder then, that WPG has had to install a revolving door at its head office to cope with the steady procession of Chinese, Korean, Indian and Singaporean interests wanting to provide funding and offtake arrangements for the Peculiar Knob project.

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