Analysts tip more delays ahead for Roy Hill

Delays are mounting for Gina Rinehart’s $10 billion Roy Hill iron ore development, with the project expected to be pushed out another six months.

Roy Hill Holdings is undertaking one of the largest debt-raisings ever attempted in the mining sector, seeking $4 billion in funding from export credit agencies and an additional $3 billion from commercial banks, The Australian reports.

The Roy Hill project includes a new 55 million tonne per annum iron ore mine, 344 kilometres of railway and a new port at Port Hedland.

Roy Hill said it is pushing to complete financing before the year is out, with production scheduled to commence in September 2015.

But recent JPMorgan analysis suggests delays in securing finance will push first production to mid-2016, with full production not being achieved until late 2017.

The investment bank said the project will generate about $US1.1 billion of free cashflow after tax but warned it may require more equity to move ahead.

Roy Hill Holdings is 70 per cent-owned by Rinehart's Hancock Prospecting. Selling off 30 per cent of the project last year, the remainder is now owned by South Korea's PoscoJapan's Marubeni and Taiwan's China Steel Corporation.

The new partners are not required to contribute more equity to Roy Hill until the $7 billion worth of debt funding has been secured  but the analysts said the project was more likely to get underway if the partners sold down more equity, The Australian reports.

"Based on the size of the debt facility required, at a time when the consensus outlook for iron ore prices is for a structural decline, we believe the project is more likely to get up and running if the JV partners sell down more equity," JPMorgan said.

With cash costs of about $US37 per tonne, JPMorgan said it expects Roy Hill will sit in the middle of the cost curve for iron ore projects.

The analyst said Roy Hill has the potential to add 7 per cent to Australian iron ore supply.

As the number of new projects being shelved or shafted continues to climb, Roy Hill is being credited for throwing lifelines to mining contractors, awarding a number of high value contracts.

In August Calibre Group won a $23 million contract for the detailed design of the 330km heavy haul main line rail, passing loops, and other associated civil infrastructure for the Roy Hill iron ore mine.

Brookfield Multiplex was last year awarded a $190 million contract to build a 2,000 person camp to accommodate Roy Hill mine workers, and another $70 million contract to develop non-processing infrastructure

 The contract for the South Hedland village, which will house 1200 employees, has since been awarded to Compass.

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