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POSCO Backs Port Plan for Australia

By MarEx 2014-09-11 00:32:00

South Korean steel giant POSCO and a private investor have agreed to back a plan by China's Baosteel and Aurizon Holdings Ltd to build rail lines and a port for a long-delayed $6.8 billion Australian iron ore project.

The backing from POSCO and investor American Metals & Coal International (AMCI), 50 percent owners of the West Pilbara Iron Ore project, marked a show of confidence in the project despite a slump in iron ore prices this year to five-year lows due to a glut of new low-cost supply from the world's top producers.

The infrastructure agreement clears the first hurdle for Baosteel and Aurizon, which recently snared the other 50 percent of the West Pilbara Iron Ore project following their A$1.4 billion takeover of its operator, Aquila Resources.

"POSCO considers the delivery of rail and port infrastructure is a key component of facilitating the development of the Pilbara project," POSCO senior vice president Kimok Yun said in a statement.

The project still faces significant commercial hurdles ahead of a final investment decision, slated for some time after January 2016, Aurizon spokesman Mark Hairsine said.

"We know it's a tough market, but we've got confidence in the long-term benefits of this project, supported by some very credible global partners," he said.

Under the agreement, Baosteel, POSCO and AMCI have given Aurizon exclusive rights up to January 2016 to develop a port and rail network for West Pilbara Iron Ore, as long as Aurizon delivers an acceptable tariff by October 2015.

The new agreement is based on the port and rail line handling at least 40 million tonnes a year of iron ore, compared with original plans to produce 30 million tonnes a year. Baosteel and Aurizon stuck to their target to begin exports in 2017/2018.

"It's at least 40 million tonnes a year, and that's the base case to make this viable," Hairsine said.

The Asian steel giants backing the project are undaunted by the prospect of adding new supply, even after iron ore prices have plunged 39 percent this year to put high-cost mines into the red in China, Australia and other countries.

Baosteel, China's no.2 steel maker, and POSCO are eager to jumpstart the West Pilbara project, which has been stuck on the drawing board for more than five years.

Baosteel Chief Financial Offcier Wu Yiming said in May that she expected the project to be profitable even if iron ore prices fell below $90 a tonne.

Iron ore for immediate delivery to China <.IO62-CNI=SI> last traded at $82.20, its lowest since September 2009. (1 US dollar = 1.0921 Australian dollar)

Copyright Reuters 2014.