Oakajee denies Australian report of cost blow out

Murchison Metals has slammed a report about Oakajee Port and Rail (OPR) today in The Australian, which it says was unsubstantiated and speculative.

The Australian reported that the capital cost of the Oakajee port and rail project has “ballooned from $4.4 billion to as much as $6.7 billion, potentially crippling attempts by Murchison Metals and Japan’s Mitsubishi to build the critical infrastructure.”

The publication claims it has received confidential letters and financial documents which show Mitsubishi now believes the Jack Hills magnetite project in Western Australia, will cost $3.9 billion.

They also apparently show that Murchison and Mitsubishi believe meeting tough new deadlines imposed on the Oakajee project is “highly unlikely” and that they told WA Premier Colin Barnett it will be “extremely difficult” to finalise key implementation agreements by 31 March.

But Murchison, which owns half of the Oakajee project, have released a statement denying the claims.

“Murchison advises that any reference to capital estimates prior to completion of the bankable feasibility studies (BFS) for the project remains premature and entirely speculative.

“The BFS, which will include definitive cost estimates, remains on track for completion in the June quarter 2011.”

Murchison’s estimates for the total capital cost for Oakajee last year were $4.4 billion, including a $565 million contribution from state and federal governments, to fund the common-user infrastructure port.

The Australian claims a document named “Mitsubishi Development” estimates the project cost is now $6.7 billion and includes about $930 for the common user infrastructure.
The Australian has referenced “a source” who claims Mitsubishi made a mistake with the sums for the project and the $930 million should have been included, bringing the actual cost of the project to near $5.8 billion.

Murchison said it is not the only company dealing with changing costs in the current financial climate.

“Cost escalation is clearly an issue affecting all major projects in Western Australia in the current environment, and it is therefore likely that there will be some increase from the capital estimates contained in OPR’s draft BFS report, that were released to the ASX in March 2010,” the statement said.

“However, Murchison advises that the budget and engineering study completed for OPR in late November 2010 as part of the BFS process resulted in an indicative capital cost for the Oakajee port and rail project of approximately $5.239 billion, exclusive of all Common User Infrastructure.”

The Australian report said there has been speculation in recent weeks that design changes to Oakajee and the changes in costs of steel and equipment in the resource sector would increase the project budget beyond $6 billion.

But Murchison states the estimates for the Oakajee are ongoing.

“Murchison advises that this estimate remains preliminary and indicative only and is subject to ongoing review, optimisation and value engineering to identify potential cost refinements and savings prior to final signoff by Murchison and Mitsubishi Development Pty Ltd.”

The statement also notes that this month the WA government agreed to extend the deadline for completion of the Implementation agreements for the Oakajee project until 31 December this year.

Earlier this month Western Australia’s Opposition state development spokesperson, Mark McGowan, accused Western Australian Premier Colin Barnett of acting like a dictator on the Oakajee project and urged him to grant the port and rail extension for the port.

A spokesperson told Australian Mining that if all approvals are granted, Oakajee expects to commence early work such as roads at the end of this year, with construction continuing until 2014-15 and first shipments may be possible by 2015.

Last week, two major infrastructure proposals for the Oakajee deepwater port project were given conditional approval by the Environmental Protection Authority.

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