Mitsubishi to Develop A$3 Billion Iron Ore Project

Mitsubishi Corp., Japan’s largest trading company, and Murchison Metals Ltd. agreed to jointly develop a A$3 billion ($2.5 billion) iron ore project in Australia amid soaring demand for the steelmaking ingredient.

The two companies want to build a port, railroad and develop the Jack Hills mine in Western Australia state, Tokyo- based Mitsubishi said in a statement on its Web site today. Australia is the world’s largest exporter of iron ore.

Iron ore prices have risen five straight years to a record because of demand driven by Chinese steelmakers, and Credit Suisse Group forecasts prices may stay at all-time highs until 2013. Mining and energy companies including Rio Tinto Group and BHP Billiton Ltd. are planning a record A$43.4 billion of new projects in Australia according to the government’s forecaster.

“They’re all reading that the window for record iron ore prices is longer, and there’s a big prize for the company that gets its project up and running first,” Peter Arden, an analyst at Intersuisse Ltd., said in Melbourne.

Mitsubishi shares fell 10 yen, or 0.3 percent, to close at 3,270 yen on the Tokyo Stock Exchange today. Mitsubishi announced the venture with Murchison after the market closed.

The plan was reported by the Nikkei newspaper before the 3 p.m. close of the Tokyo bourse. Shares of Murchison have been suspended since June 15.

Mitsubishi and Murchison will set up two project companies to own the mine and infrastructure assets, the statement said. Mitsubishi and Murchison didn’t break down the expenditure on the port and rail, and the mine in the announcements today.

Exclusive Sales

The venture will seek to produce 26 million metric tons of iron ore a year and Mitsubishi will be the exclusive sales agent for all the iron ore, excluding supply to certain customers, the Japanese company said.

Mitsubishi will pay A$150 million on completion of the joint venture agreements and make a residual payment based on an agreed valuation of the Jack Hills project after completion of a feasibility study, the statement said. Murchison, which put the annual production at 25 million tons in its statement, said production could start in 2011.

Perth-based Murchison and Midwest Corp. are among small West Australian mining companies seeking to provide alternative supplies to Rio and BHP.

Output from Western Australian iron ore producers located in the mid-west region of the country, where as many as 10 projects are currently being planned, has been constrained by a lack of infrastructure. The alternate plan for producers in the region is centered around the development of the proposed Oakajee port near Geraldton in Western Australia state.

Talks

Midwest signed an initial accord with Yilgarn Infrastructure Ltd. this month to develop a similar A$2 billion Oakajee port and railroad project to be completed by 2011. Yilgarn, a closely held company planning to trade its stock on the exchange this year, secured a A$1.5 billion loan agreement with the Export-Import Bank of China in April.

Murchison has held preliminary talks with other producers in the region with regard to its proposal with Mitsubishi, Paul Kopejtka, Murchison chairman, said in a phone conference today.

Mitsubishi, South Korea’s Posco and Australia’s Toll Holdings Ltd. last June said they were in talks with Murchison to develop a A$1.6 billion port and rail network for an iron ore project.

Murchison sent its first shipment from its Jack Hills mine to South Korea’s Posco, the world’s third-largest steelmaker, in April. Kopejtka said initial discussions with Posco, which is contracted to buy 10 million tons of iron ore a year, indicated they were supportive of the partnership with Mitsubishi.

Rio Tinto and BHP, the world’s second and third-largest exporters of iron ore behind Rio de Janeiro-based Cia. Vale do Rio Doce, are also expanding output in Australia.

Information from: www.bloomberg.com