[Australia’s] Port Hedland growth faces difficult berth – by Paul Garvey (The Australian – November 15, 2013)

http://www.theaustralian.com.au/business

IT MUST surely represent one of the most valuable pieces of undeveloped port real estate anywhere in Australia – an otherwise non-descript stretch of mangroves that stand to generate more than $US12 billion a year in revenues.

South West Creek has been earmarked as the site of two new berths at Port Hedland, Australia’s key iron ore export hub. Spare capacity at the port is becoming more and more scarce, and the South West Creek site represents one of the last remaining locations capable of squeezing in new berths.

Each berth is expected to allow for some 50 million tonnes of iron ore exports. With the benchmark price of iron ore currently sitting comfortably above $US120 a tonne, that’s a huge potential source of income for both the miners allocated capacity at the site, and the state government hungry to grow its pie of iron ore royalties even further.

But the will of both the state government and the parties allocated the space far from guarantees the development of the strategically important site. Despite iron ore prices continuing to dangle a very lucrative carrot for the parties, finding a path to the port’s development remains a major challenge.

Port Hedland’s path towards reaching capacity has been clear for a number of years.

The growth in exports out of Port Hedland since 2007 shows just how fast exports out of the port have increased.

In the month of October 2007, some 9.7 million tonnes were shipped out of the port. Six years later, in October 2013, some 28.9 million tonnes were squeezed out of the harbour’s waterways.

The port’s founding tenant and biggest exporter BHP Billiton seriously considered developing a major new outer harbour at the port to counter the lack of space available within the port, but scrapped the project – which analysts had estimated could cost in excess of $10 billion – last year amid slipping iron ore prices and a company-wide pull back in capital spending.

Although analysts have long been warning that rising iron ore output would overawe demand from China’s steel industry, appetite for more tonnes still appears to remain strong. Profit margins on Australian iron ore production still remain robust, providing a strong incentive for existing and new players to grow their output as fast as possible.

“In expansion terms, South West Creek is probably the last expandable area in Port Hedland,” James Wilson, a resources analyst at Morgans Financial in Perth, told The Australian.

“It’s certainly one of the last areas that could be developed to a reasonable amount of tonnage.”

One of the two berth sites at South West Creek have been allocated to Gina Rinehart’s Hancock Prospecting and will be used to ship the 50 million tonnes a year of iron ore earmarked to come out of Hancock’s Roy Hill mine, if and when the multi-billion-dollar development can secure funding.

The second berth was allocated to a group of junior iron ore miners working under the name North West Infrastructure. A series of mergers and acquisitions among those juniors has left just two companies holding that allocation – Atlas Iron, with 31.5 million tonnes a year of allocation, and Brockman Mining, with an 18.5 million tonne per annum allocation.

As the last obvious site awaiting development, South West Creek is not Port Hedland’s finest location. Industry sources have told The Australian that the site will require more dredging than was required by other iron ore export berths added at the port in recent years, given the comparatively shallow water in the creek.

And development of the berths won’t come cheap – Mr Wilson says he wouldn’t be surprised if the cost exceed a billion dollars.

For the rest of this article, click here: http://www.theaustralian.com.au/business/in-depth/port-hedland-growth-faces-difficult-berth/story-fnjy4qn5-1226758982006

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