WESTERN AUSTRALIA’S INTERNATIONAL RESOURCES DEVELOPMENT MAGAZINE

September–November 2003 $3 (inc GST) LNG Technology breakthrough

China Massive supply potential

Petroleum Big and getting bigger rint post approved PP 665002/00062 rint post approved P WESTERN AUSTRALIAN OFFICES Department of Industry and Resources Mineral House • 100 Plain Street • EAST PERTH WA 6004 Tel: +61 8 9222 3333 • Fax: +61 8 9222 3430 www.doir.wa.gov.au Investment 168–170 St Georges Terrace • PERTH Western Australia 6000 FROM THE MINISTER Postal address: Box 7606 • Cloisters Square PERTH Western Australia 6850 rom the first discovery of oil at Rough Range near Tel: +61 8 9327 5555 • Fax: +61 8 9222 3862 Email: [email protected] Exmouth 50 years ago, oil and gas have emerged as INTERNATIONAL OFFICES Western Australia’s primary resource exports. Today, their Europe F contribution to the Western Australian economy makes them Government of Western Australia European Office • 5th floor, Australia Centre our most important products. Corner of Strand and Melbourne Place Clive Brown, MLA LONDON WC2B 4LG • UNITED KINGDOM In 2002 alone, more than A$10.6 billion of petroleum products Minister for State Tel: +44 20 7240 2881 • Fax: +44 20 7240 6637 were generated. This has injected millions of dollars in the form Development Email: [email protected] India — Mumbai of royalties back into Western Australia, and has strongly Western Australian Trade Office contributed to the State’s fast economic growth rate. Current 93 Jolly Maker Chambers No 2 indicators suggest Western Australia’s rate of economic growth 9th floor, Nariman Point • MUMBAI 400 021 INDIA Tel: +91 22 230 3973/74/78 • Fax: +91 22 230 3977 will rise to 7% in 2003-04. However, State Treasury forecasts Email: [email protected] 4.5% for the same period. India — Chennai Western Australian Trade Office - Advisory Office The petroleum sector is also an important part of the State’s environmental strategy. 1 Doshi Regency • 876 Poonamallee High Road Kilpauk • Chennai 600 084 • INDIA Natural gas is now responsible for the majority of the State’s power supply. Natural gas Tel: +91 44 640 0407 • Fax: +91 44 643 0064 from the North West Shelf has emerged as the dominant environmentally friendly fuel E-mail: [email protected] source that will power Western Australia in the decades to come. Indonesia — Jakarta Western Australia Trade Office Regional industries and communities will also continue to benefit from our vast supply c/- Australian Trade Commission • Australian Embassy JI H R Rasuna Said Kav C15 - 16, Kuningan of natural gas. For example, construction will soon commence on a gas pipeline from Jakarta 12940 • INDONESIA Kambalda to Esperance. Tel: +62 21 2550 5331 • Fax: +62 21 522 7103 E-mail: [email protected] We are indeed entering an era promising enormous economic dividends, expertise in Indonesia — Surabaya new technologies, commodity diversification and the creation of new markets. Western Australian Trade Office Graha Pena 17th floor • Jalan Ahmed Yani 88 Surabaya 60234 INDONESIA Tel: +62 31 829 9979 • Fax: +62 31 829 9975 FROM THE DIRECTOR GENERAL Email: [email protected] Japan — Tokyo Western Australian Government Office n this edition of Prospect we highlight the exciting period of Australian Business Centre growth and expansion in the Western Australian petroleum 28th floor, New Otani Garden Court sector. 4-1 Kioicho, Chiyoda-Ku • TOKYO 102-0094 JAPAN I Tel: +81 3 5214 0791 • Fax: +81 3 5214 0796 Email: [email protected] Over the past 10 years, Western Australia has firmly positioned Japan — Kobe itself as one of the world’s leading suppliers of petroleum and Western Australian Government Office liquefied natural gas, with the North West Shelf and other gas 6th floor, Golden Sun Building • 3-6 Nakayamate-dori 4-Chome Chuo-Ku • KOBE 650-0004 JAPAN fields off the State’s coast ensuring the long-term supply of gas to Tel: +81 78 242 7705 • Fax: +81 78 242 7707 local and world markets. Jim Limerick Email: [email protected] Director General Malaysia Already generating more than A$10 billion worth of products Department of Industry Western Australian Trade Office annually, oil and gas development in Western Australia still and Resources 4th floor, UBN Tower • 10 Jalan P Ramlee KUALA LUMPUR 50250 MALAYSIA provides many new business and economic opportunities. Tel: +60 3 2031 8175/6 • Fax: +60 3 2031 8177 Email: [email protected] To support these opportunities the Department of Industry and Middle East Resources provides a range of services to industry. For example, Western Australian Trade Office • Emarat Atrium PO Box 58007 • Dubai • UNITED ARAB EMIRATES in addition to the comprehensive geoscientific data collected and Tel: +971 4 343 3226 • Fax: +971 4 343 3238 stored by the Department, software has been developed to link E-mail: [email protected] the huge databanks of exploration and prospecting information for easy, single point People’s Republic of China — Shanghai Western Australian Trade & Investment Promotion entry. Explorers and prospectors across the world can now access this information via our Shanghai Representative Office • Room 2208, CITIC Square website, www.doir.wa.gov.au. 1168 Nanjing Road West • Shanghai 200041 THE PEOPLE'S REPUBLIC OF CHINA The Department also continues to be active in assisting project developers in all facets of Tel: +86 21 5292 5899 • Fax: +86 21 5292 5889 Email: [email protected] project development requiring Government action, including access to suitable land and People’s Republic of China — Hangzhou infrastructure and obtaining the relevant development approvals. Western Australian Trade & Investment Promotion Hangzhou Representative Office Assisting companies to gain access to international markets is another key service Room 910 • World Trade Office Plaza available from the Department. In this edition of Prospect we report on China’s demand Zhejiang World Trade Centre 15 Shuguang Road • Hangzhou 310007 for more iron ore to meet its huge expansion plans, including infrastructure for the 2008 PEOPLES REPUBLIC OF CHINA Beijing Olympic Games. We also report on WMC Resources Ltd signing of a A$1 billion Tel: +86 571 8795 0296 • Fax: +86 571 8795 0295 E-mail: [email protected] agreement to supply product to China’s largest nickel producer, Jinchuan Group Ltd. Taiwan WA Business Development Manager There is no doubt that the resources sector remains an important focal point of Western Australian Commerce & Industry Office Australia’s economy. The Department of Industry and Resources is committed to Australian Business Centre supporting the ongoing development of future business and economic opportunities in Suite 2606, International Trade Building #333 Keelung Road Section 1 • TAIPEI 110 TAIWAN this sector. Tel: +886 2 8780 9118 ext 216 • Fax: +886 2 2757 6707 Email: nicholas.mckay@austrade,gov.au We hope you find Prospect an excellent introduction to some of these opportunities. Thailand WA Business Development Manager Australian Trade Commission • Australian Embassy 37 South Sathorn Road • BANGKOK 10120 • THAILAND Tel: +662 287 2680 Ext 3307 • Fax: +662 287 2589 E-mail: [email protected] in this issue

special feature PETROLEUM In this edition, Prospect acknowledges the importance of petroleum. Apart from being Western Australia’s number one resource commodity, petroleum is the principal source of energy for the State, and plays a critical role in the development of Western Australia’s economy. Turn to pages 6-20 for more details.

2 ALUMINA 5 AMMONIA PLANT Background on why Alcoa World Alumina Australia Civil work starts on the first of Burrup Fertilisers’ A$630 plans to boost production at its Pinjarra alumina million ammonia plant, potentially the first of several new refinery from 3.4 Mt/a to 4 Mt/a. petrochemical projects on the Burrup Peninsula.

3 BOOMING IRON ORE TRADE 6 SCIENTIFIC BREAKTHROUGH Technology developed in Western Australia could make LNG China beckons more iron ore to meet its huge production 25% cheaper. expansion plans, including infrastructure for the 2008 Beijing Olympic Games. 18 GAS POWER 4 PIG IRON Construction begins on a new gas pipeline between Kambalda and Esperance, as well as a new gas-fired power Construction of an important downstream processing station at Esperance. project for Western Australia, the A$600 million HIsmelt pig iron plant at Kwinana, is now 30% 22 MINERAL EXPLORATION completed. Newly appointed AMEC chief pledges to stop the flow of exploration spending outside Australia. 5 LNG TRAIN 4 UPDATE Progress details on the 24 KAMBALDA A$1.6 billion gas A look at why the nickel town of Kambalda is booming again. processing project on the Burrup Peninsula in 36 RESOURCES MAP northwest Western Australia. A subscription form appears on page 35

Front cover: On board the drill rig during Prospect ISSN 1037-4590 the discovery of Santos’ Western Australian Prospect magazine is published quarterly by the Western Australian Government’s Department of Industry and Mutineer/Exeter oilfield off Resources (DoIR) and Ray Burns Media. the northwest coast of Editorial management: John Terrell, DoIR Communications & Marketing Division. Tel: (08) 9327 5555 • Fax: (08) 9327 5500. Western Australia. Advertising management: Ray Burns Media, PO Box 1230, South Perth Westerm Australia 6951 Tel: (08) 9474 3288 • Mobile: 0408 474 328 • Email: [email protected] Prospect has been compiled in good faith by the Department of Industry and Resources from information and data gathered in the course of the magazine’s production. Opinions expressed in Prospect are those of the authors and not necessarily those of the Department of Industry and Resources. No person or organisation should act on the basis of any matter contained in this publication without considering, and if necessary taking, Department of appropriate professional advice from other sources. The Department of Industry and Industry and Resources Resources, its employees and contracted personnel undertake no responsibility to any person or organisation in respect of this publication. www.doir.wa.gov.au ABN: 69 410 335 356

Prospect September–November 2003 1 Alumina A$400 million optimisation plan for Alcoa’s Pinjarra refinery

for the Pinjarra refinery site. The 140 MW co- generation facility will be built by Western Australian energy utility, AlintaGas. Due to be on-line during the second quarter of 2005, and installed just ahead of the proposed refinery upgrade, it will be first major new power generation facility to operate in Western Australia after the total deregulation of the electricity market in the State from 1 January 2005.

WMC signs a A$1 billion nickel deal with China

estern Australian nickel producer, WWMC Resources Ltd, has signed a A$1 billion agreement to supply product to China’s largest nickel producer, Jinchuan Group Limited. The agreement to supply 90 000 tonnes of nickel-in-matte strengthens a 15-year old relationship that WMC has had with Jinchuan. The relationship began in 1988 when WMC assisted Jinchuan with the construction of its nickel smelter in Gansu province in central China, and was reinforced last December when Jinchuan agreed to take an initial consignment of 30 000 tonnes of nickel-in-matte from WMC. Additional feedstock: Alcoa workmen oversee the arrival of bauxite at the Pinjarra refinery, The plan is for WMC to export 120 which is to be upgraded to produce an extra 600 000 tonnes of alumina annually. 000 tonnes of nickel-in-matte from the lcoa has identified its Pinjarra Described by Alcoa as an efficiency Kalgoorlie Nickel Smelter to Jinchuan alumina refinery, in southwest upgrade, the proposed new works program is between 2005 and 2010. When refined, AWestern Australia, as a priority source designed to optimise flow characteristics and the nickel-in-matte will represent more for additional feedstock to meet the world’s alumina yield at the Pinjarra refinery, with than 20% of the total domestic growing demand for alumina. only a minor increase to the physical size of production of nickel metal in China to The company, already the world’s biggest the plant. 2010. alumina producer, has signalled its intention State Development Minister Clive Brown WMC views China as a secure, high- to undertake an optimisation program that said increasing the refinery’s capacity by 600 growth market for its nickel products, will boost production at the Pinjarra refinery 000 tonnes per years would increase Western and indicates that the latest deal opens from 3.4 Mt/a to 4 Mt/a. Australia’s exports by up to A$160 million up new commercial and exploration Alcoa intends lodging a Notice of Intent annually, and directly create 1000 jobs during opportunities in the region for the with the Environmental Protection Authority the construction phase. company. following a consultation program with the These jobs are in addition to 60 jobs that local community. will be created during construction of a A$100 million co-generation facility, also planned

2 Prospect September–November 2003 Iron and steel Big opportunities beckon in China

Arcing up: This 550 m long steel-arch bridge across the Huangpu River in Shanghai is the longest of its type in the world. New infrastructure like this is one of the reasons China has become a massive consumer of steel.

hina is the biggest steel market in the “The Chinese steel market is growing rise towers currently under construction in world — and it is about to get a lot faster than all earlier predictions. In fact, the Pudong precinct of Shanghai alone. Cbigger. demand is expected to soar during the next Other drivers for China's accelerating China is also fast underpinning the decade.” demand for iron ore and steel are the expansion of the Australian mining industry, China’s consumption of steel exceeded country’s entry into the World Trade according to Robin Chambers, an Australian 200 Mt for the first time in 2002. It is Organisation, which has made it a massive corporate lawyer who has made more than expected to exceed 250 Mt by 2005 and 300 manufacturing base for international 150 trips to China during the last two Mt by 2010. companies; its domestic housing boom; decades. Fuelling this growth is a massive development of its western regions, which is Addressing the sixth annual Global Iron construction program within China, consuming massive amounts of steel for Ore and Steel Forecast Conference in Perth including preparations for the 2008 Olympic infrastructure such as bridges, railways, on the topic of "Strengthening Australian Ties Games in Beijing. This will include the airports etc; and machine building, in the Chinese Iron and Steel Industry", Mr construction of 22 new stadiums, the highlighted by a rapidly growing car industry. Chambers said China’s rapidly expanding renovation of 15 existing stadiums, In fact, China’s car production increased by market for iron and steel products would construction of a new Olympic village and 30% in 2002, and will require an upgrade of offset weak demand for these commodities major upgrades to transport facilities over the its steel production to accommodate higher elsewhere in the world. next few years. quality specialty steels. "All of this is good news for the Australian Besides Beijing, building construction While China’s steel industry is iron ore industry, which is able to provide continues apace all over China, with 80 high- predominantly State owned, the Central

higher quality iron ore than is available from ▼ China’s own mines," Mr Chambers said.

Prospect September–November 2003 3 Government is upstream investment in overseas iron encouraging foreign ore resources such as those in Western investment in its steel Australia. Both Hamersley Iron and plants. China is also BHP Billiton have existing partnerships looking for new with Chinese steel companies, a very technologies, plus powerful marketing base on which to logistical and management build for the future. expertise from foreign All of this serves to entrench investors to make its steel Australia as a premier supplier of iron industry internationally ore products into China’s expanding competitive. steel industry. So, what does this mean Mr Chambers believes that many for the Australian iron ore excellent opportunities exist for small industry? players in the Australian iron ore China has already industry to team up with Chinese moved to diversify its companies to secure valuable market imports of iron ore. While share in China. Australia’s iron ore exports Steel in demand: An artist’s impression of the largely metal undercroft to China increased from 24 of the main stadium for the Beijing Olympic Games. Mt in 1999 to 32 Mt in 2000 and 37 Mt in 2001, Australia’s share of China’s rapidly growing iron ore imports fell during this period. Hismelt begins to take shape That, according to Mr Chambers, was due to Australia’s inability to increase exports onstruction of the quickly to meet the new demand. Brazil and HIsmelt pig iron plant on India gained from this situation, with Brazil Cthe Kwinana industrial increasing its exports to China by 66% and strip near Perth is progressing India by 54% for the three-year period to the to schedule, with procurement end of 2001. about 50% completed and Currently, iron ore majors Rio Tinto and construction about 30% BHP Billiton are rapidly accelerating the completed by mid-September development of their iron ore projects in 2003. Western Australia to take advantage of the About 90 workers are currently booming steel demand in China. on site, with the workforce Rio Tinto is fast-tracking plans to boost its expected to peak at around Pilbara iron ore output from 74 Mt to 114 Mt 350 during the first quarter of per annum by 2007. That’s a whopping 54% 2004. increase on current production levels. The A$600 million project, Under way: After 20 years of planning, Rio Tinto’s Additionally, BHP Billiton plans to representing the first revolutionary A$400 million HIsmelt pig iron plant is now increase its iron ore output from a current commercial application of Rio rapidly taking shape on the Kwinana industrial strip level of 75–80 Mt/a to 100 Mt/a by the end of Tinto’s revolutionary HIsmelt south of Perth. technology, is a significant the second quarter of 2004. boost for Western Australian Significantly, the growth plans of both industrial development, and will add greatly to the State’s export potential. companies include expansions of rail and Incorporating 20 years of development, HIsmelt was initially conceived to treat iron port capacity; a factor very important for ore fines from the Pilbara region. However, the process has developed into an sustaining Western Australia’s increase in extremely versatile technology able to handle a number of metalliferous feeds, and supply capability to world markets. also provides significant environmental benefits compared with traditional iron- At the same time, owing to the growth in making technologies. Chinese demand, Robe River Iron Associates’ The final site for the HIsmelt plant was selected after an extensive worldwide West Angelas mine in the Central Pilbara is search. Compared with the other sites considered, construction of the plant at ramping up production much faster than Kwinana offered: originally anticipated. It is now expected to • Access to existing infrastructure from previous research plant; reach capacity of 20 Mt/a by early 2004, two • Availability of skilled labour in the local region; and years earlier than forecast at the mine’s opening. • Potential synergies with local industries for raw materials and by-product take off. Portman Limited’s Koolyanobbing iron ore Rio Tinto currently owns 60% of the project, with Nucor Corporate 25%, Mitsubishi mine expansion also gained approvals earlier 10% and the Shougang Group 5%. this year and work has commenced to bring The project is being designed and engineered by the Kvaerner Clough Joint Venture, the new reserves into production in the first which takes advantage of Kvaerner’s long association with HIsmelt through its quarter of 2004. development and Clough’s local industry experience and knowledge. To ensure security of long-term supplies, Chinese steel companies are keenly pursuing

4 Prospect September–November 2003 LNG Train 4 roars ahead

Massive mechanical jigsaw: Part of the sophisticated equipment within the A$1.6 billion fourth LNG processing train being built for the North West Shelf project. With pre-commissioning now in progress, project managers say the plant is on track for start-up in mid-2004.

hile construction continues on the Although the North West Shelf project is Development (Australia) Proprietary Limited, North West Shelf Venture's LNG operated by Australian company Woodside BP Developments Australia Ltd, Chevron WTrain 4 project, the pre- Energy Ltd on behalf of itself and its five Australia Ltd and Japan Australia LNG (MIMI) commissioning phase is now under way, international partners, (BHP Billiton Pty Ltd, construction of LNG Train 4 is being indicating that the end is in sight for the A$1.6 Petroleum (North West Shelf) Pty Ltd, Shell managed by the Kellogg Joint Venture. billion expansion project. In early August, major mechanical erection contractors for the project were fully Work begins on world-class ammonia plant mobilised, with the on-site construction workforce reaching a project peak of about Civil works have started on the world’s largest ammonia plant on the Burrup 2200. Peninsula, near Karratha in northwest While some construction work will Western Australia. continue until Christmas, the overall project is Burrup Fertilisers Pty Ltd will outlay A$630 on schedule for completion in mid-2004. By million to bring the 760 000 t/a liquid that time, the North West Shelf Venturers will ammonia plant into production which, at have a new plant that is capable of producing this stage, is scheduled for completion in an extra 4.2 Mt/a of LNG for growing export the second quarter of 2005. markets. The new plant and associated Product from the facility, the first of six infrastructure, including power generation, major gas-based downstream processing will be fully integrated into the existing three- industries planned for the Burrup train 7.5 Mt/a LNG plant. Peninsula, will be shipped overseas, most The safety record on the project has been likely to India where it will be used by the The project is expected to generate 500 construction jobs, and full-time impressive, with more than six million hours developer’s parent company, Oswal, for employment for 60 people. of work being completed without a lost time the manufacture of fertilisers. injury.

Prospect September–November 2003 5 Scientific breakthrough Micro cells make LNG 25% cheaper

estern Australia is at the forefront of gas Wliquefaction technology with a project being jointly undertaken by Perth- based Curtin University and Core Laboratories, opening the way for the exploitation of small "stranded" gas fields, improving large-scale LNG production and helping the environment. LNG micro cells were developed by a team led by Curtin University’s Professor Robert Amin, and demonstrate how pursuing scientific knowledge can lead to profitable technologies. Micro cells were originally developed as an observation Project leader: Curtin University’s Professor Robert Amin whose and measurement tool for project team is using micro cell technology to produce LNG 25% laboratories. Impetus to cheaper than large-scale production trains. develop them further stemmed from limited experimental data on the way natural gas behaves at cryogenic (very low) temperatures, and because other equipment to gather such data was expensive and limited in capabilities. The micro cell uses an innovative process involving three refrigerants and liquid nitrogen to achieve continuous compression of gas to around minus 161º Celsius. The technology has met, and vastly exceeded, its original aims. Scientists can now use it to gather data about the behaviour of gas at low temperatures, but the efficiency of the unit in bringing the gas to liquefaction in relatively small amounts sees this technology defy the normal trends of economies of scale. The price of LNG production from a micro-cell is actually 25% cheaper per unit than that of a large-scale LNG production train. The current unit is capable of generating about 1200 litres of LNG daily from equipment that can fit on the back of a truck, but it is estimated that this capacity could be enlarged by a factor of ten. A conventional LNG train, by comparison, might produce in the vicinity of 15 million litres per day. With this kind of performance, the technology has many very important potential benefits, including: • The monetisation of small and remote gas fields, which might have been abandoned, reinjected or flared in the past; •Reduced greenhouse gas emissions through reduction of flaring, displacement of less clean fuels, the potential to avoid methane leakage and more efficiency in production; •Better understanding of the behaviour of natural gas at liquefaction temperatures, leading to better design and operation of conventional LNG plants; •Safer gas processing; and •Gas fuel use in remote or undeveloped regions where pipeline infrastructure is not available. The project is now being commercialised, and the development has received funding from the Western Australian Government through the Centres of Excellence in Industry — Focused R and D Scheme, and from the Federal Department of Industry, Science and Resources through the R and D Start Program.

6 Prospect September–November 2003 Marketforce FPC0073 Petroleum

From zero production in Western Australia 50 years ago, the petroleum industry has come a long way. Today, it boasts 54 producing oil and gasfields that collectively yield about A$10 billion worth of products annually. Articles in this feature provide details about the search for petroleum, its production, the technologies employed, and the outlook for the State’s most valuable industry.

Prospect September–November 2003 7 petroleum

Growing and getting more important by Bright outlook for Western the year Australian petroleum etroleum exploration and production is Western Australia’s most valuable P n extremely positive future awaits the several substantial gas processing projects industry. Western Australian petroleum proposed for the Burrup Peninsula. While most of the activity is offshore and industry in the short-to-medium term Construction of Burrup Fertilisers’ A$630 away from the public eye, the industry is A after record crude oil and condensate million ammonia plant, the first of potentially involved in 54 producing oil and gas fields production in 2002. six new gas processing plants on the Burrup that collectively yielded more than A$10 Peninsula, commenced in May 2003. billion worth of products in 2002. This Western Australia's crude oil sales reached included A$4.4 billion worth of crude oil, a new high of 96 million barrels (MMbbl) in Environmental approval has been granted for A$2.7 billion worth of liquefied natural 2002, up by 8% on the previous year. This was four of the other five projects, including a gas, A$1.9 billion worth of condensate, largely due to a full year of production from methanol plant proposed by Methanex. The A$660 million worth of natural gas, A$197 the Legendre oil field, increased output from initial plant considered by Methanex had a million worth of butane and A$165 million Wanaea and commencement of production capacity of up to 5 Mt/a of methanol. But, worth of propane. from other new fields. the company announced in March 2003 that Sales volume of condensate in Western it would be suspending development Petroleum sales, Australia increased by 14% to a record high 43 pending a review of construction costs and its Western Australia 2002 MMbbl in 2002. This was largely due to a full initial level of capital commitment to the A$10.2 billion year’s production from the Athena and project. One option under review involves a 2% 2% Echo/Yodel fields. two-stage development. A smaller capacity 6% Looking ahead, significant additional oil plant (1.3 Mt/a) with capital costs of US$500 and gas production for Western Australia will million would be built in the first stage to be 19% 44% come from the proposed development of new operational in 2006. In the second stage, a fields. Oil and gas upstream projects that further 1 Mt/a production capacity would be have been committed or are anticipated to be built up in 2009. committed during 2002–2004, total A$7.2 The gas that would be required for the six

27% billion (see Table 1 below). Of these projects, GTL projects is estimated to be at least double that of Western Australia’s total Crude oil the Double Island/Simpson North and LNG Hovea/Eremia fields are under development, domestic consumption. Among the most ▼ Condensate and the Woollybutt project Propane began production in May Table 1 Natural gas 2003. Proposed major upstream oil and gas projects in Western Australia Butane Another positive sign for Project Capital expenditure the Western Australian gas (A$ million) Exports of oil, gas and other forms of industry is the increasing Gorgon offshore gas facilities (stage 1) $4000 petroleum make a major contribution to Enfield/Laverda oil development $600 momentum to be gained from the State’s export earnings and balance of Norfolk/Exeter/Mutineer oil development $800 payments. the State winning a A$25 Cliffhead oil development $300 billion LNG export contract Research shows that more than 900 Double Island/Simpson North oil development $100 businesses are involved in servicing the with China, plus a number of Woollybutt oil development $80 petroleum industry, and that more than other petroleum-related Linda/Rose/Lee gas development $80 17 000 people depend, directly and projects earmarked for the Blacktip gas development $300 indirectly, on the sector for work. State’s northwest. These Whicher Range onshore tight gas development: $150 projects include the North Angel NWS gas and condensate development $800 Petroleum accounts for more royalties — Hovea/Eremia onshore oil development $20 West Shelf project’s LNG in excess of A$500 million per year — Jingamia oil development $15 than any other industry. expansion, ChevronTexaco’s Total $7245 The industry is the major supplier of Gorgon LNG project and competitively priced energy to Western Table 2: Proposed gas-to-liquids (GTL) projects in WA Australian industry and households, with Company Project Production capacity Capital expenditure more than 80% of the State’s primary (A$ million) energy requirements sourced from oil and Sasol Chevron synthetic diesel 45 000 bbl/d (stage 1) $2000 gas. Dampier Nitrogen ammonia/urea 100 000 t/a of ammonia While crude oil is the single most valuable 1.2 Mt/a of urea $900 of all the petroleum items taken from the Burrup Fertiliser ammonia 760 000 t/a $630 seabed or land in Western Australia, gas Japan DME Dimethyl-ether 1.7 Mt/a $1000 is the dominant fuel and a commodity on GTL Resources (Liquigaz) methanol 1 Mt/a $770 which the State Government’s vision for a Methanex methanol 1.3 Mt/a (stage 1) $800 healthy and prosperous industrial Total $6100 development future is based.

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+65-6887-1039 [email protected] significant gas to liquids (GTL) projects is a synthetic diesel plant proposed by Sasol Chevron. If developed, it would represent the biggest resource project in Western Australia since the North West Shelf project. The project involves the expenditure of about A$2 billion during the first stage of development. The project aims to produce 45 000 bbl/d of synthetic diesel initially, building up later to 200 000 bbl/d. The plant would operate for around 25 years and potentially coincide with the development of the expansive gas reserves in the greater Gorgon area. In contrast to the promising outlook for the petroleum industry in Western Australia, there continues to be uncertainty surrounding the outlook for the global oil market as well as the world economy. Although oil prices eased from a 12-year high of US$40/bbl after the war in Iraq, prices remained very volatile. On the demand side, growth in the US remains weak and Asian economies, struggling to boost business and Green mud: CSIRO petroleum scientist Dr Chee Tan with a small sample of a new water-based consumer confidence, are now recovering drilling mud that will have considerable environmental benefits for the petroleum industry. from the effects from the outbreak of Severe Acute Respiratory Syndrome (SARS). On the supply side, the war in New mud mix set to clean Iraq ended quicker than expected and the damage to oil infrastructure in Iraq appears limited. Although OPEC has decided to cut production levels recently, drilling industry other countries have increased production markedly in recent months. t may look like a thick version of Bailey’s applied within existing environmental As a result, the international oil market Irish Cream, but a new environmentally standards. could well be faced with a situation of Ifriendly drilling mud developed by CSIRO petroleum scientist Dr Chee Tan, excess supply and an even larger decline Australian and American scientists has the who heads up a specialist research team in prices once inventories have been potential to save the world oil and gas working on the project at the Australian replenished. However, ongoing industry billions of dollars in exploration and Resources Research Centre (ARRC), in the geopolitical tensions around the world environmental repair costs. Perth suburb of Bentley, is excited at the (including Venezuela, Nigeria and post- Oil wells have traditionally used oil-based potential impact of the new drilling mud. war Iraq) and lingering terrorist threats and synthetic fluids to help prevent well "Collapsed and sidetracked oil wells, lost are still posing considerable risk to the bores from collapsing, to cool and lubricate tools and abandoned wells cost the global oil world oil market. drills and keep out extraneous material. and gas industry A$2 billion annually," he Nevertheless, the increasing However, such fluids can potentially pollute said. development activities in both the the ocean and there is increasing pressure to "Shales, mudstones, siltstones and upstream and downstream sectors in have them banned. claystones account for 75% of oil, gas and Western Australia highlight the State’s Developed partly by the Commonwealth geothermal wells, and they cause about 90% attraction as a place to invest in Scientific and Industrial Research of wellbore instability-related problems petroleum-based production for Organisation at Perth’s Technology Park, the during drilling operations. international investors. With abundant new "green muds" are an efficient, low-cost, "There has long been a need for a new petroleum resources, a highly skilled water-based alternative that are hydrocarbon generation of water-based drilling fluids, and workforce, well-established financial and free, and designed to reduce drilling costs this new formula is, we believe, the physical infrastructure, geographical and improve oil well performance. breakthrough that the industry has been proximity to burgeoning Asian markets, The breakthrough muds have special looking for." low sovereign risk and supportive and polymers that coat the wellbore surface to Dr Tan believes that the new-generation efficient public services, Western prevent extraneous fluids destabilising the drilling muds also have the potential to Australia is a key location for a growing well. They are as efficient as traditional reduce the number of oil wells being drilled. petroleum industry. methods, are more cost-effective, and can be They will be particularly useful for operators

10 Prospect September–November 2003 petroleum

Research & Development World-class alliance established in Perth

ustralia's Commonwealth Scientific and Industrial Research Organisation A(CSIRO) and two of Western Australia’s leading universities have combined to establish a world-class energy technology research alliance. The alliance of the CSIRO, the University of Western Australia and Curtin University, is an initiative of the A$37 million Australian Resources Research Centre (ARRC) at Bentley Technology Park. Not only will it enhance the premium research and development expertise already offered at this facility, and further consolidate Key researchers: Petroleum specialists Perth’s reputation as the headquarters of the from CSIRO, UWA and Curtin University Australian petroleum industry, it will also who are part of a world-class energy provide benefit for the global oil and gas technology research alliance in Perth. industry. CSIRO’s Acting Chief of Petroleum “The major oil and gas companies have Resources, Greg Thill, said the initiative was a strongly supported such an alliance as this, up offshore because they are keen to back Australia’s significant move towards further consolidating the ARRC’s international oil world-class research and development and gas research and development capability. capabilities,” Dr Glover said. Such an alliance, and the resulting “We believe that Australian companies will concentration of expertise through the ARRC, quickly appreciate the benefits of accessing of long-reach oil wells that must maintain would create a world-class centre that would such a combined depth of premium expertise, a delicate balance between drilling fluid be the first of its kind in South East Asia, and through one united body.” pressure and rock stresses over lengthy one of only a few in the world — similar to Tim McGrath, the Commercial Projects periods. facilities in Houston, Texas, and the Manager with UWA’s School of Oil and Gas By helping petroleum companies drill Netherlands. Engineering, said that he was confident the successfully and economically to depths of He said the vision was to help address, and research alliance would quickly gain 10 km and beyond, fewer platforms will be even reverse, the current trend for most international recognition due to the synergies needed to exploit an oil field. research and development funding to go of combining each partner’s expert staff and The "green muds" formulation has offshore, by keeping world-class skills, the sharing of major infrastructure such as been commercialised via a special research and funding in Australia. laboratory equipment and software. arrangement with the Houston-based Dr Barney Glover, from Curtin University This could not have happened if the critical company, Halliburton Baroid, and is being of Technology’s Office of Research and mass had not been achieved by the relocation marketed as the BarOmega ™ (Osmotic Development, said there were major of CSIRO Petroleum to Western Australia. Membrane Efficiency Generating advantages for the Australian resources sector “The real benefits for the international oil Aqueous) drilling fluid system. in an energy technology alliance involving and gas industry will be that they can access The research partnership is currently three key research bodies in Western world-leading research and development negotiating with petroleum companies to Australia. services at significantly lower cost, due to the trial the new-generation drilling mud, Such advantages included the favourable exchange rates compared to both within Australia and overseas in the development of a critical mass of experts, Europe and the United States,” Mr McGrath South China Sea and the Middle East. enhanced research infrastructure, and greater said. The first trials are due to be undertaken collaboration — between institutions and “The benefits for Western Australia are the in the fourth quarter of 2003. across disciplines — to solve significant support of the Australian energy industry, the The North West Shelf, northern Perth problems. There would also be enhanced export of intellectual property to the Basin and Timor Sea are areas where the accountability and quality control of the international industry, and increased local new-generation drilling mud would be research and development process, plus a opportunities for oil and gas undergraduate suitable. significant increase in Australia’s energy and postgraduate students,” he said. research reputation.

Prospect September–November 2003 11 Browse Basin Worth more than a browse

Reef/Brecknock (21 Tcf), Brewster (3 Tcf), n 1699, British maritime explorer William Dinicthys/Gorgonicthys/Titanicthys (10 Tcf) Dampier dismissed Western Australia’s — and with potential for this to expand. northwest coast as “a land of sand, flies I This is comparable with the Greater and sore eyes”. If he were alive today, he Browse basin Gorgon region, which has estimated resources would surely be impressed by current and • Broome in the order of 50 Tcf, while the Timor Sea future developments associated with the gas- fields of Bayu-Undan, Sunrise/Sunset, rich North West Shelf and downstream Troubadour and Evans Shoal total around 22 processing facilities on the Burrup Peninsula. Tcf. Dampier also sailed north to Timor over discovery in the area. For example, the Looking at it from a different angle, the an area of the sea that the petroleum industry Japanese company Inpex Corporation total Australian domestic gas market uses less now refers to as the Browse Basin. (formerly Indonesia Petroleum, Ltd) has than 1 Tcf per year. So there’s considerable The Browse Basin lies entirely offshore acquired a 100% interest in exploration scope to use more of Australia’s gas resources north of Broome and covers approximately permit WA-285-P, where three exploration locally. 100 000 km2. Geologically, it is bounded by wells are now being tested for gas and Broome Port is again being used as a the Leveque Shelf to the south, the Kimberley condensate, with further appraisal due supply base for offshore oil and gas Basin to the east, the Ashmore Platform and shortly. exploration activities, having serviced the Scott Plateau to the north, and the Canning Woodside is the operator of the WA-33-P early frontier work for all of the offshore North Basin to the southwest. joint venture at Brecknock and Scott Reef, West. The geographic proximity of Broome to While still a frontier area in the eyes of owning a 50% interest in the project along major offshore exploration permit areas in the some in the petroleum industry, the Browse with partners BP (16.7%), ChevronTexaco Browse Basin makes it an ideal location for rig Basin could one day be developed to provide (16.7%), Shell (8.3%) and BHP Petroleum servicing and general supply logistics. the energy requirements for another major (8.3%). Recent exploration in the area of Broome’s existing and planned port gas processing hub in the State’s north, in Brecknock South revealed a 167 m gas infrastructure will potentially save companies addition to the Burrup Peninsula and column over a single interval in the primary and contractors a considerable amount of possibly other sites in the Pilbara. reservoir. time and money for offshore operations. A number of other exciting scenarios are A conservative estimate puts the size of Gas piped onshore on the West Kimberley being considered by Government for the natural gas resources in the Browse Basin in coast could be used for a number of potential development of the Browse Basin, including the order of more than 35 trillion cubic feet, industries including LNG, petrochemicals and the concept of a gas pipeline feeding into a comprising developments at Scott mineral processing, as well as for industrial national grid, and the potential export of LNG as well as the establishment of a new gas processing hub on the Kimberley Coast. KIMBERLEY MINERAL EXPLORATION AND DEVELOPMENT Petroleum exploration activity in the Commodity Deposits & Projects Company Location Browse Basin began in 1967, and it is now Platinum group elements Panton Sill Platinum Resource Near Halls Creek Eileen Bore Thundelarra Exp. NL Near Halls Creek recognised as a repository of world-class gas Gold Sandpiper Barrick Gold Corporation reserves awaiting extraction and commercial and Tanami Gold NL SE of Halls Creek development, either for the domestic market Diamonds Aries pipe Thundelarra Exp NL NE Kimberley or for export-oriented value-added Grainall Trend Barrick Corp SE of Halls Creek processing. Oombulgurri Striker Resources N/L NW of Kununurra Although the Browse Basin has had Argyle Rio Tinto Ltd SW of Kununurra limited exploration, the hydrocarbon Ellendale Kimberley Diamond NW of Fitzroy discovery rate is extremely favourable. Company NL Crossing Iron ore Cockatoo Island Portman Mining Reservoirs have been established at depths of Henry Walker Eltin Group Ltd Cockatoo Island between 4000 and 5000 m below sea level. Koolan Island Aztec Resources Koolan Island The logistics of operating in such a remote Bauxite Mitchell Plateau and Rio Tinto Mitchell Plateau area and in deep water make Browse a Cape Bougainville Anglo Gold and Cape challenge, but the rewards are potentially ALCOA Bougainville high for those with a vision to monetise the Zinc, lead, copper Kapok West Western Metals Near Fitzroy basin’s impressive offshore gas resources. Crossing A number of companies have exploration Zinc, lead Pillara Western Metals Lennard Shelf Nickel/cobalt Sally Malay Sally Malay Mining Ltd permits in the Browse Basin, and some of SE Kununurra them are keen to invest more, especially in Rare earths Cummins Range Navigator Resources Ltd the light of a recent exciting new gas SE of Halls Creek Brockman Aztec Resources Ltd SE of Halls Creek

12 Prospect September–November 2003 power generation to a number of mine sites in the Kimberley and East Pilbara regions. New shipping milestone for It could also be the basis of a potential transcontinental pipeline that would ensure security and diversity for the eastern Woodside and its partners Australian energy market, and provide a local alternative to proposed gas supplies from the Timor Sea or Papua New Guinea. A gas-processing hub on the West Kimberley coast would maximise the advantages of clustering industries. Advantages include the sharing of common, multi-user facilities and infrastructure, the exchange of raw materials and feedstocks with adjacent industries, and the efficient use of energy and emissions to minimise impacts on the environment. This has been demonstrated on the Burrup Peninsula, near Karratha, where the Western Australian Government has committed A$137 million for infrastructure support for a world-scale gas processing precinct. A coastal gas-processing hub could provide competitively priced energy for existing operations on Cockatoo Island (iron Away she goes: Tugs nudge the Northwest Sandpiper out of the port of Dampier, along with it ore) and future mining and mineral the 1500th Western Australian LNG cargo on consignment to Japanese power utilities. processing operations on Koolan Island, as well as others in the Kimberley region. The n late July, Woodside despatched its 1500th cargo of liquefied natural gas (LNG) to Japan and, table on the preceding page depicts potential as usual, it arrived on time with a minimum of fuss. and existing operations, such as the large I The cargo was delivered to existing customers, Osaka Gas and Kansai Electric, on board the bauxite deposits identified at Mitchell Plateau LNG carrier Northwest Sandpiper. and Cape Bougainville, and the ongoing Woodside and its five joint venture partners in the North West Shelf (NWS) project have been diamond exploration in the Ellendale region. exporting LNG from the port of Dampier to Japan under long-term contracts since 1989 — With such a treasure chest of minerals without missing a single supply commitment. onshore, and gas resources relatively close to The NWS venture’s Chief Executive Officer, Steve Ollerearnshaw, said the 1500th cargo was a shore, it is easy to see why the Browse Basin is key milestone that demonstrated the project’s excellent reputation as a reliable producer and of such strategic importance to the Kimberley supplier of LNG. region and Australia as a whole.

Prospect September–November 2003 13 A growing international nickel producer with interests in gold and mineral processing technology

LionOre proudly supports the

“Casting a mantle of safety over the inland” LionOre Mining International acknowledges and supports the critical role The Royal Flying Doctor Service plays in providing a vital lifeline to regional and remote Australia 24 hours a day, 7 days a week, 365 days of the year. This lifeline is integral to the Health and Safety strategies of all companies engaged in exploration and mining in Australia.

LIONORE MINING INTERNATIONAL LTD CANADA: AUSTRALIA: BOTSWANA: 20 Toronto Street, 12th Floor LionOre Australia Pty Ltd Tati Nickel Mining Company (Pty) Ltd Toronto, Ontario Level 2, 10 Ord Street, PO Box 1272 Canada M5C 2B8 West Perth, Western Australia 6005 Francistown, Botswana Australia Telephone: 416 777-1985 Telephone: 267 210 701 Telephone: 61 8 9481-5656 Facsimile: 416 777-1320 Facsimile: 61 8 9481-5823 Facsimile: 267 216 215 14 ProspectE-Mail:September [email protected]–November 2003 E-Mail: [email protected] Website: www.lionore.com Website: www.lionore.com.au JAZ0732 petroleum

The 1973 oil crisis Looking back on the big crunch

to world markets was a result of political and hirty years ago (October 1973), BY RESOURCES WRITER, JOHN MCILWRAITH regional issues. upheavals in the Middle East At the time, alarmists pointed out that the transformed the somnolent Western would emerge from this new realisation that T world had only 30 years supply of oil left. Australian energy industry, ultimately making oil and natural gas were crucial raw materials Oil prices subsequently fell back, though it a force in world markets and bringing great for modern economies, and that Western never to pre-1973 levels, but another crisis in prosperity to the State. Australia had immense potential to supply 1979, again as a result of tumultuous events In the months following emerging these commodities. in the Middle East, drove them to new production cutbacks by the Organisation of The initial effects were much higher petrol heights, well over US$30 a barrel, with Petroleum Exporting Countries (OPEC), oil prices, increases in the costs of products that forecasts (unfulfilled) that the price would prices rose four and five times, creating include hydrocarbons (the price of bitumen, reach US$60. shortages and near panic in western for making roads, went up sharply, for Market forces then came into play, with countries. example). such prices making it possible to develop new A negative effect was felt in the Western Apocalyptic forecasts warned of increasing sources of oil, often in deep water, by non- Australian iron ore industry, when Robe shortages and rioting in the streets of the OPEC members. New fields in such regions as River’s pellet plant was closed because the world’s big cities, as people fought for the North Sea and Alaska loosened OPEC’s energy-intensive process became gasoline amid severe economic decline. grip (which in any case had never accounted uncompetitive. Few people listened to the calm messages for much more than a third of world It may have been difficult at the time for from experts, that there was no imminent production). Western Australians to see the benefits that shortage of crude oil likely, but that the flow ▼

Prospect September–November 2003 15 petroleum

Prices stabilised, and even fell (in recent An emerging petrochemical industry, More than A$450 million, or more than years they were close to US$10 a barrel, based on natural gas, will also make a 60% of Australia’s total oil and gas which, in inflation adjusted terms, was well significant contribution. exploration, takes place in Western Australia. below the figures of 1973). In all, there are currently more than A$17 All this is a long way from the two oil and Even now, in such terms, prices are much billion worth of petroleum-related projects gas fields (Barrow Island and Dongara) that lower than in 1979. that have either been approved or are under existed in 1973, a year in which the world There may be more energy shocks in consideration in Western Australia. changed for ever … in the case of Western future, and other energy sources may be Oil and gas is now produced in regions far Australia, for the better. developed. from the North West Shelf, including the Perth But, for the time being, hydrocarbons Basin, where new prospects are emerging. remain the most attractive form of energy for most applications. Importantly, Western Australia has been prudent enough to exploit LATE NEWS its great resources, and is well placed to meet *** * * * future increases in global demand. The rapidly rising prices of the 1970s Big Gorgon project gets stimulated the development of the vast offshore hydrocarbon fields of the North West Shelf, and encouraged exploration that has in-principle approval made Western Australia easily the nation’s leading source of oil and gas. The first major n one of the most gas and condensate discoveries Western Isignificant Australia (Scott Reef, North Rankin and resources Goodwyn) were made in 1971. development announcements in Today, 55% of Australia’s oil production, the nation’s history, 90% of its gas reserves and 100% of its LNG the Western production are in Western Australia. Australian While dogged by setbacks for several Government has years, the North West Shelf project’s prospects granted in-principle were greatly enhanced by rising energy prices approval for the A$6 in the 1970s and a take-or-pay contracted billion Gorgon gas project to access negotiated with the Western Australian State Barrow Island. Government in 1975. The project could Super signing: The signing ceremony at Parliament House, Perth, Some swift decisions were made at the cost as much as where in-principle approval was given for the developers of the other end of the energy production chain that A$11 billion if Gorgon gas project to proceed with gas processing facilities on saved Western Australians millions of dollars. extended to a Barrow Island. In the centre of the photo is Western Australian SECWA (now Western Power) quickly second stage. This Premier Dr Geoff Gallop, while on the left is the Managing Director of converted its Kwinana power station from oil would effectively Chevron Texaco Australia Pty Ltd, Jay Johnson, and on the right is to coal (later gas), bringing huge savings on double the size of State Development Minister Clive Brown. Western Australia’s fuel bills as oil prices soared. gas industry, making Another major beneficiary was Alcoa of it one of the biggest resource projects ever in Australia. Australia whose gas commitments in the The State Government has given a consortium, led by US energy giant Chevron 1970s helped underwrite the North West Shelf Texaco, in-principle approval to develop gas processing facilities on a 300-hectare project and the 1500 km Dampier-to-Perth piece of land on Barrow Island, about 85 km north of Onslow off the Pilbara coast. natural gas pipeline. The plan is to convert the gas into liquefied natural gas (LNG) on Barrow Island and From this challenging era, the petroleum export it to international markets. The proposed development also includes a pipeline industry in Western Australia has expanded to the mainland that will be used to supply gas for domestic markets. rapidly over the last 30 years to a point where The Greater Gorgon area contains more than 40 Tcf of gas, or about 25% of it now provides 55% of Australia’s oil and Australia’s known gas resources. As part of a State Agreement, the joint venturers condensate, and all of its liquefied natural must make available up to 2000 petajoules of gas for domestic consumption, or gas. enough to meet Western Australia’s current electricity production and household Fifty-four oil and gas fields produced fuel needs for the next 25 years. worth A$10.2 billion last year. Western Key economic benefits of the project include: Australian petroleum products go to many •A construction workforce of 3000 and a permanent workforce of 400; countries, and will grow in the next few years. • Another 6000 indirect jobs across the nation, including at least 1700 in Western The 2002 signing of a A$25 billion LNG Australia; contract with China, the first awarded by that • Annual exports of A$2.5 billion; country, will give a significant boost to the • A$17.8 billion in revenue to the Commonwealth Government; North West Shelf project. When the current • A$300 million in State Government revenue; and a LNG Train 4 expansion is completed, the • A$2 billion a year boost to the State economy. project will become the biggest LNG processor in the world.

16 Prospect September–November 2003 the next step

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Goldfields pipeline system to Santos opens become the nation’s longest Perth office

Western business unit: Janet Hann, who heads up Santos’s 25 member Mutineer/Exter field development team in Perth.

antos, a company with A$5 billion worth of assets and the largest producer of gas for the Australian market, recently set up Delivering more gas: The gas compressor station at Wiluna which went into service in 2001. S a base in Perth to manage the company’s A new one proposed for a site near Paraburdoo will be of a similar size. growing petroleum interests in Western Australia. A new office located in the Forrest Centre, new gas compressor is to be added to 1493 km for the Moomba-Sydney- Athe Goldfields gas pipeline, boosting Newcastle pipeline. 221 St Georges Terrace, in central Perth, will reliability for mining operations as well as The new compressor station near accommodate a team of about 25 people who providing extra demand that will come Paraburdoo will be the fourth on the will be primarily responsible for developing from a new 380 km extension from Goldfields gas pipeline. Twin Santos’ Mutineer/Exeter oil development in Kambalda to Esperance. reciprocating gas compressors were the Carnarvon Basin. To be located at the existing scraper installed at Yarraloola and Ilgarari when The Mutineer and Exeter fields, with the pipeline was originally built in station about 30 km south from combined reserves in the range of 70 million to 1996, while a single gas turbine Paraburdoo, the new A$11 million 196 million barrels of oil, were confirmed compressor station was completed at compressor package will increase the Wiluna in June 2001. during 2002 and are currently being developed pipeline’s capacity by 10% to 108 to target first production by mid-2005. terajoules per day. “Mutineer/Exeter is an important project While well short of for the company,” Santos' Managing Director, the 600 TJ/d Mr John Ellice-Flint, said. capacity of the “It is therefore appropriate that Santos Dampier-to-Bunbury reflects this importance by establishing a local gas pipeline, the base in Perth to develop local relationships and Goldfields gas synergies. pipeline system will • Dampier “This is critical, as we have commenced the become the State’s • Parabardoo longest gas pipeline • commercial and technical activity focused by the time the around having a Floating Production Storage Esperance Moomba and Offloading facility (FPSO) onsite at • extension is Mutineer/Exeter, 160 km offshore from completed in the •Kalgoorlie Dampier, by mid-2005. • Kambalda first quarter of PERTH “In parallel with this work will be other field • Newcastle • 2004. By then, it • development in collaboration with our joint Bunbury• Esperance •SYDNEY will be 1764 km venture partners to ensure Mutineer/Exeter long, compared with becomes a commercial success within three 1530 km for the years of discovery.” Dampier-to-Bunbury Santos’ Western Australian operations gas pipeline and contribute approximately half of the company’s oil and gas liquids production annually. ▼

18 Prospect September–November 2003 A Bright Future Planned for Investors in Victoria Petroleum N.L.

Victoria Petroleum N.L looks set to increase oil production after joining the ranks of Australia’s oil producers. Participant in onshore North Perth Basin 5 MMBO Jingemia Oil Field produc- tion testing up to 1900 bopd in first half 2003.

 Active appraisal drilling program in Jingemia Oil Field commencing late August 2003 with aim to increase production to 4000 bopd in 1st Qtr 2004

 Three well October-November 2003 drilling program in Surat Basin, Queensland targeting 32 MMBO potential

 Active explorer in Cooper Basin, South Australia with 2 wells in March 2004

 Australian and US net oil production of 130 bopd in first half 2003

 14 wells planned over next 8 months

CONTACTS John Kopcheff Managing Director Chas Lane Exlploration Manager PHONE 08 9220 9800 FACSIMILE 08 9220 9801 E-MAIL [email protected] ADDRESS Level 36 Exchange Plaza 2 the Esplanade, Perth Western Australia 6000 VICTORIA PETROLEUM ASX CODE: VPE FOR MORE INFORMATION PLEASE VISIT www.vicpet.com.au petroleum

In 2002, production from Santos’ Western Australian field interests averaged in excess New research may save of 30 000 barrels of oil equivalent per day. The company also drilled nine wells in Western Australian waters. millions in exploration costs Santos is steadily increasing its investment in Western Australia’s offshore petroleum sector, and currently holds more new technique applied to than 28 000 km2 of exploration acreage, oil exploration for the including interests in 12 operated permits Afirst time has the and 31 non-operated permits. potential to save exploration Its latest acreage acquisitions came in July companies millions of dollars in when it acquired a 71.55% interest in wasted effort. offshore exploration permit WA-272-P in the The approach uses a highly Browse Basin, plus a 50% interest in WA-338- sensitive method of determining P (also in the Browse Basin), and WA-339-P in the thermal history of the rocks the Houtman Basin. Exploration spending in the Earth's crust. Petroleum on these three permits will amount to about companies need thermal history A$4 million over the next five years. information to assess the most The 25 staff now based in Perth are a mere likely prospects to drill, or, drop in the ocean compared with the perhaps more realistically, where company’s total workforce of about 1700, not to drill. who are located in Santos’ head office in The technique, called U-Th- Increasing the odds: The map above defines the regional He thermochronology, first variation in thermal history across the Browse Basin in Adelaide, as well as other offices in Brisbane, northwest Western Australia. Offshore, thermal histories developed by academia, is now Jakarta and Houston. are relatively simple because, according to Geotrack Santos, the acronym for South being implemented by scientists scientist Dr Paul Green, they involve continuous heating Australia–Northern Territory Oil Search, was from CSIRO and Geotrack due to long-term burial. Inshore, however, the situation is incorporated in Adelaide in 1954, and for International for application in more complex, with a number of heating and cooling the petroleum industry. episodes identified. Identification of those areas where most of its history its operations have been hydrocarbon traps were formed prior to the main heating “This method has the located predominantly within the Cooper episode (which is when the source rocks would generate Basin. potential to save companies their hydrocarbons) allows definition of areas most likely to Currently about 60% of the company’s millions of dollars in wasted now contain hydrocarbons (therefore constituting the best assets are in that area, with the balance being exploration effort by enabling exploration targets). situated in various States of Australia, both them to withdraw earlier from onshore and offshore, plus the United States unwarranted drilling programs,” says (onshore and the Gulf of Mexico). Additional Geotrack scientist Dr Paul Green. “The improved definition of the timing exploration acreage is held in the Browse “What we do is to save time elsewhere by and magnitude of palaeo-thermal episodes Basin, Bonaparte Gulf (in Western Australia), eliminating some of the uncertainty and provided by this integrated approach means the Gippsland Basin (offshore Victoria), the providing firm thermal history constraints. an improved definition of areas where timing Otway Basin (onshore and offshore Victoria), Most companies spend days modelling of oil generation post-dates formation of the Sorell Basin (northwest of Tasmania), different scenarios and risking the outcomes. structures, resulting in more efficient Indonesia and Papua New Guinea. The application of this technique can reduce exploration. In Western Australia, Santos has non- the time required by showing which scenarios CSIRO Petroleum — in a commercial and operator interests in the Stag (oil), East Spar are likely and which are not possible,” says Dr research alliance with Geotrack International, (oil, gas and condensate), Barrow Island (oil), Green. involving New Zealand's University of Thevenard (oil and gas) and Airlie Island (oil) CSIRO Petroleum Resources scientist, Dr Waikato as a collaborator — has become the operations, and recently announced Peter Crowhurst, says the technique allowed first in the world to apply this technique increased gas resources with the successful information to be obtained at lower directly to practical thermal history issues in appraisal of its John Brookes gas field in the temperatures than ever before. It can also the petroleum industry. offshore Carnarvon basin. identify the most recent geothermal event The technique has the potential to Santos’ General Manager Business that occurred in a basin and its possible generate commercial business from Development, Graeme Bethune, said being effects on petroleum migration. petroleum companies and geological surveys Australia’s pre-eminent oil and gas State, it “Of particular interest to clients is our around the world. Several pilot studies and made perfect sense for Santos to establish a ability to determine U-Th-He ages on single commercial analyses using this technique permanent base in Western Australia. crystals of apatite and zircon,” says Dr have been successfully completed on basins “We hope to build on the success that we Crowhurst. “This offers greater precision than in Australia, the Gulf of Mexico, the North Sea have already achieved in Western Australia, work on multiple crystals because it reduces and Colombia. and are actively pursuing new opportunities the risk of contaminated samples or a mixed within the State.” age.

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Performs reverse circulation

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ne of the early priorities and other administrative charges, most of for the new Chief which is linked to land title matters.” Executive of the O Mrs Arnold has a strong administrative Association of Mining and background. Most recently she was the Exploration Companies (AMEC), Executive Director of the Office of Policy and Anne Arnold, is to stem the flow Planning in the Department of Housing and of mineral exploration Works. Prior to that, during the 1990s, she expenditure out of Australia. was Executive Director of the Western In 2002, Australian Australian Division of the Urban companies outlaid $678 million Development Institute of Australia. on the search for minerals. Her predecessor George Savell, who was a Regrettably, 22% or nearly $150 tireless advocate for the rights of explorers million of that total was and miners during his 16 years with AMEC, dedicated to mineral exploration says he is looking forward to taking a break. programs offshore in places like “However, after recharging the batteries, Africa, Asia and South America. Baton change: One of the early priorities of AMEC’s new I’ll be looking around for a new challenge, It is no secret that native title Chief Executive, Anne Arnold, is to stimulate more greenfields mineral exploration in Australia. Here, she bids perhaps some project-based, problem- and allied land access issues farewell to her predecessor George Savell, who worked for solving type of work,” he said. have contributed to the worrying the association for 16 years. drain on greenfields exploration in Australia. While Western Australia recorded a healthy A$17 billion worth of mineral Salute to mining’s golden goose production in 2002, much of it was derived estern Australia’s famous from established mines and brownfields WGolden Mile, on the doorstep exploration. of Kalgoorlie–Boulder, recently Mrs Arnold is determined to reverse the chalked up its 50th million ounce trend of Australian mineral explorers looking of gold production. offshore to spend nearly a quarter of their This impressive milestone comes total exploration budgets. after 110 years of continuous Since taking over the reins from retiring mining on one of the most AMEC chief George Savell on 4 July this year, productive slabs of dirt anywhere Mrs Arnold has been busily networking with in the world. the association’s 160 members, pointing out Formerly home to more than 80 the virtues of investing their exploration underground gold mines, the dollars in Australia. Golden Mile is now jointly owned by High strike rates and low sovereign risk are Barrick Gold of Australia and among the best reasons why explorers should Newmont Australia, and mined on an open cut basis by Kalgoorlie seek minerals in their own backyard before Consolidated Gold Mines (KCGM). heading overseas, she said. “Sure, the native title process has been So just how much is 50 million Impossible dream: If the load on the ounces of gold? In metric terms, it slow and difficult over the last few years, but I back of this CAT 793 haul truck were is equivalent to 1550 tonnes. think that the various stakeholders are now solid gold, it would weigh 1550 tonnes, understanding one another better and Surprisingly, it would occupy just or the Golden Mile’s entire gold three-quarters of the load space of production since 1893. The only trouble working towards more sensible outcomes,” a CAT 793 haul truck, a vehicle is, the vehicle would collapse under the Mrs Arnold said. commonly used on the winding strain of such a concentrated payload. “Goodwill on the ground is currently the haul roads of the Fimiston “Super best it has been since the Mabo decision in Pit”. 1992. People on both sides of the land rights The only trouble is, the CAT’s axles would collapse under the strain of such a issue generally agree that the legal process concentrated load, while its engine would burn out without advancing a single metre. has not delivered workable solutions, and To mine 50 million ounces of gold today, KCGM would need to move more than 20 that consultation and cooperation is the best million CAT 793 loads of dirt. If the vehicles were lined up bumper-to-bumper they way forward. would stretch around the world six times. “This is a sensible approach, because at In today’s values, 50 million ounces would be worth about A$26 billion, or about A$9 the moment about 25% of all exploration billion more than the total value of mineral production in Western Australia in 2002. budgets are being gobbled up by court costs

22 Prospect September–November 2003

Kimberley region Resurgent New gold province proclaimed n January 2002, Striker Resources announced the Idiscovery of significant alluvial gold in the northeast Kimberley. The discovery was made by Striker’s joint venture partner De Beers during exploration for diamonds, which have been the main target for explorers in the Proterozoic Kimberley Basin since the mid- 1970s. The gold prospect was discovered after De Beers had highlighted a large zone of rock alteration during an LEGEND airborne hyperspectral Pre-2002 tenements 2002–2003 'gold rush' applications for tenements survey and had recovered visible Fitzgerald (1905) gold sample sites '88 Creek' gold prospect gold within the zone during follow-up Phanerozoic Canning, Ord, Bonaparte and Browse Basins Scope for new plant: The St Ives gold plant Neoproterozoic Centralian Superbasin stream sediment has a capacity of 3.1 Mt/a, but eventually Mesoproterozoic Bastion, Carr Boyd, Birrindudu, Osmond and Victoria River Basins sampling. could be upgraded to handle 6 Mt/a. Kimberley Basin Palaeoproterozoic Striker named the Lamboo Comple x and Hooper Complex prospect 88 Creek ambalda, one of the last company mining because it was the towns to be established in Western site where 88 grains of gold had KAustralia, has had its fair share of ups and been recovered from a bulk stream-sediment sample. Subsequent exploration by downs over the last 35 years. Striker showed anomalous gold values in soil samples at 88 Creek and two other When resources giant WMC withdrew from prospects located in a northwesterly trending corridor measuring 12 x 5 km. Within its nickel and gold interests in the Kambalda this area, Striker also identified extensive alteration and quartz veins with textures area in late 2001, many people in the town feared commonly seen in areas of epithermal gold mineralization. the worst. In September 2002, Striker announced that it had confirmed a new gold province However, Kambalda, the centre of Australia’s in the Kimberley Basin. famous nickel boom of the late 1960s, now has a Significant gold had previously been discovered in the southwestern part of the new lease of life. Kimberley Basin in 1905, but, intriguingly, the report about this seems to have Nickel juniors such as Mincor Resources NL been overlooked by both prospectors and geologists for almost 100 years. The and Independence Gold NL which acquired the report is a Parliamentary paper written by W. V. Fitzgerald and published in 1907. Miitel and Wannaway and the Long/Victor nickel A copy of the report was examined in 2001 during research for a mineral mines respectively from WMC, and South prospectivity study of the West Kimberley carried out by the Geological Survey. African gold major Gold Fields Ltd which bought Fitzgerald was a botanist and prospector attached to a government survey the St Ives gold operation from WMC, have given expedition to examine areas that might be suitable for cultivation. In the course of the region a huge lift in confidence. his work he sampled some gold-bearing quartz veins, and assays from four “Kambalda is booming once again, with separate locations (see figure) showed gold values of 70 parts per million (ppm), 12.3 ppm, 2.5 ppm, and 1.9 ppm. virtually every unit of accommodation at the single men’s quarters, the caravan park and the Following Striker’s announcement and the rediscovery of Fitzgerald’s report, there was a rush to apply for large numbers of exploration licences in the Kimberley local hotel currently booked out,” said outgoing Basin (see figure) and the region has become a new area for gold exploration in Shire of Coolgardie chief executive officer, Jim Western Australia. Fraser. “The August 2001 census had Kambalda’s Further information is available in two of the Geological Survey’s mineral population at 3200 (1000 for East Kambalda and prospectivity packages: the recently released Report 85 on the north Kimberley 2200 for West Kambalda), but now it is more like and the soon to be released Report 88 on the west Kimberley. More detailed 3870 (1200 for East Kambalda and 2670 for West information will also be available in a technical paper in the Geological Survey’s Kambalda).” Annual Review 2002–03, due to be published at the end of 2003. Optimistic about Kambalda’s long-term future, the Shire has a number of development initiatives under way.

24 Prospect September–November 2003 Kambalda builds for long-term future

completed in September or October 2003, “That would give us the flexibility of lifting with a “go or no” decision expected by the our throughput to 4.5 to 5 Mt/a, a figure that end of the year. could be increased to as much as 6 Mt/a with The existing mill has a throughput additional capital spending,” Mr Banning said. capacity of 3.1 Mt/a, but is antiquated and “We aim to be around the St Ives/ Kambalda costly to run, according to Mr Banning. area for a long time,” he said. “We are banking The company is weighing up the on a 10-years plus mine life, and this could possibility of commissioning an entirely new easily be extended to 15 or 20 years. treatment plant using a semi-autogenous “The future for Kambalda indeed looks grinding mill that it acquired from WMC, but bright.” is now in storage.

Dampier port to get new export jetty

St Ives A significant catalyst to these development plans was the arrival of Gold Fields Ltd (one of the world's largest precious metals producers) to the Kambalda district in December 2001 after it acquired the St Ives gold operations from WMC at a cost of A$520 million. Steve Banning, the vice president of Gold Fields’ Australian operations, said the St Ives acquisition had exceeded expectations — “and we are looking to go a whole lot further with our development plans” he told Prospect magazine. New export facility: The State Government has allocated A$56 million for a new bulk cargo jetty to be built about 400 metres southwest of the existing public wharf (pictured “We currently have 10 to 12 drilling rigs above) at Dampier. operating on Lake Lefroy as well as on our dry tenements around St Ives with the idea of new dimension is to be added to complement the existing general cargo and supply operations at the public substantially lifting our gold reserves,” Mr Athe already diverse Port of wharf, and prevent earlier-held fears of Banning said. Dampier. potential overcrowding. St Ives is now producing at a rate of about It’s in the form a of new bulk cargo 500 000 ounces of gold a year at a cash cost of jetty to be established about 400 State Development Minister Clive Brown said infrastructure such as the about A$330 per ounce. metres southwest of the existing Dampier (public) cargo wharf, and new multi-use bulk cargo export facility Last year’s St Ives reserves statement which will be used to despatch liquids added to Western Australia’s showed 2.3 million ounces of mineable ore and other products from the gas attractiveness and competitiveness as and 6.7 million ounces of resource. processing precinct on the Burrup a destination for new investment and However, Mr Banning is confident that the Peninsula. major project development. company can prove up to four times these The go ahead for the new jetty is part The Port of Dampier is one of figures. of a State government commitment to Australia's largest tonnage ports with Gold Fields is currently spending A$30–35 invest more than A$150 million in exports of iron ore, salt, LNG, LPG and million a year on gold exploration in the St infrastructure for new industries on the condensate totalling 82 Mt/a last year. Ives area. Burrup Peninsula, including A$56 The value of these exports was in The company is presently working on a million at the port. excess of $A 5 billion, underlining the final feasibility study that could see its mill The new jetty will initially service fact that the port is of high strategic throughput eventually doubled. The liquids tankers, but could be upgraded value to Australia. expansion program could cost as much as to handle bulk solids. It will A$100 million. The study is due to be

Prospect September–November 2003 25 the big picture

The Global Scene An important risk to the US outlook is that of high levels of household and corporate indebtedness. Businesses may attempt to rebuild balance sheets Global outlook of ongoing recovery but the US carries the thus slowing the recovery in investment. High levels of household indebtedness combined with recent poor employment growth may see an burden erosion of consumer sentiment and a consequent slowing of consumption growth as households rebuild precautionary saving levels. This may remove Aggregate global economic growth disappointed in the first half of 2003, one of the key planks underpinning the nascent recovery in investment. and the composition of growth remained unbalanced. Although the US Encouragingly, employment losses appear to have slowed in recent months. economy showed signs of improvement in the June quarter, Europe continued to stagnate. In the East Asian region, China grew strongly Some positive news on Japan though elsewhere growth generally slowed. Japan’s growth rate has There has been some more positive news on the Japanese economy over improved, though its composition remains uneven, with manufacturing recent months. GDP growth in the June quarter surprised on the upside and showing signs of life, but services remaining weak. showed signs of stronger consumer demand. Business sentiment appears to The global outlook remains one of slowly improving growth over the be improving and profitability has picked up. In line with this, business balance of 2003, stepping up modestly in 2004. Unfortunately, given lack investment saw strong growth in the March quarter of this year. of growth in Europe, this improvement remains contingent on the US Much of the improvement, however, has been confined to the manufacturing economy and a sustained lift in business investment there. sector. This partly reflects the export-driven nature of growth in the past few The asymmetric nature of global growth and its heavy reliance on the US quarters and rising machinery orders. Encouragingly, the Tankan survey in particular, increases its exposure to shocks and there are downside indicator of manufacturing investment intentions saw a rise in the June risks to the solid growth that forecasters generally expect in 2004. quarter, suggesting that investment in the sector may be ready to see a sustained turnaround. United States growth lifts, though uncertainty remains Unfortunately, the improvement in the manufacturing sector is not yet being The June quarter 2003 saw a mild lift in US GDP growth and the question followed up in the services sector. The Tertiary Activity Index for the sector now is, is this a sign of a rebound from the slowing in growth experienced has remained flat, reflecting recent weakness in domestic demand. over previous quarters? This depends on whether the factors holding the US economy back in recent years have dissipated to allow those driving it Past weakness in domestic consumption growth has reflected two key forward to propel the economy to stronger growth. factors. One is that the labour market has been very weak, with unemployment remaining at record highs of between 5.25 and 5.5% for the One of the factors retarding recovery has been the deterioration in the last year and a half. A poor outlook for household earnings has continued to stockmarket that began in 2000. As Chart 2 shows there have been retard consumption growth. Also holding back consumer spending, prices some significant gains in global equity prices since the trough in the continue to fall, encouraging households to delay purchases. A broad March quarter of 2003. measure of price trends, the GDP deflator, fell by 3.25% over the year to March 2003. Any recovery in stocks should help to consolidate private consumption, the key driver of recent growth, as household wealth perceptions improve. Encouragingly, recent data suggests that for the first time in two years, both In addition to improvement in equity prices, the US dollar has depreciated employment and wages are rising, potentially giving consumption a boost and in trade-weighted terms. These two factors combined, if they are broadening out the pattern of growth beyond exports. sustained, provide an improvement in overall financial conditions facing Business and banking sector balance sheet problems remain a key constraint businesses, particularly those in the traded goods sector. on Japanese investment. Nominal interest rates are at historic lows and the Federal Reserve has Non-Japan Asian growth continues but a little softer indicated that monetary policy will remain supportive of growth for a considerable period, providing some certainty for investors. Fiscal policy Growth in the non-Japan Asian region as a whole has softened over 2003. is also providing support. The Budget deficit has risen from 1.5% of GDP This largely reflects weaker consumption growth, which was further in 2002 to over 4% this year, reflecting accelerated income tax cuts and exacerbated by the SARS outbreak in the June quarter. As with other parts of reduced tax rates on dividends and capital gains. the world economy, however, the pattern of growth across the region has varied. The key underlying factor holding back US recovery has been a lack of China and Thailand continue to record healthy growth rates, notwithstanding business investment. This in large part reflected the excess capital stock some recent slowing. China recorded growth of just under 7% in the year to built up in the late 1990s and, to some degree, the lower risk appetite of the June quarter 2003, following growth of 9.9% in the year to the previous investors following corporate governance scandals. Despite strong policy quarter. stimulus and the easing of financial conditions, there is some uncertainty about the outlook for investment and the likelihood that it will support By contrast, the Korean government acted to restrain rapid growth in recent consumption growth to provide a lift-off to a more broadly based household indebtedness as the economy grew strongly in the second half of and sustainable acceleration in US growth. 2002, resulting in a slowing of consumer spending in the early part of this year. Korean unemployment has risen over recent months. There are some recent encouraging signs. • Manufacturing production picked up in May and June, and business Rising unemployment has been a feature of a number of economies in the sentiment and durable goods orders have also consolidated over region with Hong Kong seeing record rates in June. Regional central banks recent months. acting in response to weaker employment and in a context of lower inflation have eased monetary policy. • Consumption continues to grow in line with rising wages and supported by low interest rates. Softer growth and SARS have also seen governments across the region undertake some fiscal expansion. Malaysia has taken the biggest step with • Following two and a half years of decline, business investment rose in an expansion package worth around 2% of GDP followed by Taiwan, Korea the June quarter 2003, with signs of an improvement in IT spending. and Hong Kong with packages worth around 1% of GDP. The housing sector continues to remain resilient. Signs of recovery are now evident, notably in Hong Kong and Singapore.

26 Prospect September–November 2003 Economic trends

Compiled by DoIR’s Economic Analysis Branch

Europe continues to stagnate European economic growth has retreated further over the past year, with GDP growth rising only marginally, by 0.9%, through the year to the March quarter. Prospects for improvement in the near term are gloomy in a context of declining industrial production. Chart 1: Recent Major Economy Output Growth per cent per cent The tentative shoots of growth which emerged early in 2002 have withered, 1.5 1.5 as the export growth which drove the recovery has softened under slower US 1.0 1.0 growth and the appreciation of the euro. Business investment has reflected the modest performance of both external and domestic demand and 0.5 0.5 continued to contract — business sentiment has tracked this deterioration. 0.0 0.0 Driving the overall European performance, German and, more recently, French -0.5 -0.5 growth have softened as production and exports have fallen. -1.0 -1.0 For the outlook, a key risk is that consumption, which has been one of the -1.5 -1.5 few, modest, contributors to growth will soften as the weak labour market, -2.0 -2.0 rising unemployment and gloomy state of consumer sentiment erode household spending. -2.5 -2.5 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 In this climate, and with an absence of inflationary pressures, the European US Euro area Japan Central Bank (ECB) cut the official interest rate by 50 basis points to 2% in Quarterly economic growth. Source RBA Bulletin June 2003. Further stimulus is in train as Germany, in the face of the constraints imposed by the Stability and Growth Pact, implements tax cuts in early 2004. While the UK economy has outperformed the euro area over recent years, it too has seen some slowing in growth over the first half of 2003. Driving this has been softer household consumption as wage and house price growth have decelerated. Chart 2: Global Sharemarkets to end July 2003 Index: June 2000=100 Western Australia’s economy continues to grow 110 The March quarter of 2003 saw Western Australia’s domestic economy 100 continue strong underlying growth with a rise of 1.1% in the trend measure of domestic demand. 90 The May 2003 State Budget forecast a 4.5% rise in gross State product (GSP) 80 in 2003-04, following growth of 4.25% in 2002-03. Strong business investment, ongoing consumption growth and a rebound from the drought are 70 expected to underpin the forecast for 2003-04.

60 The Australian dollar remains solid at higher levels The Australian dollar (A$) has maintained the appreciation it has experienced 50 since mid 2002, though the record against different currencies has varied. Against the US$ it has risen by around 25%, from around US52 cents at its 40 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 most recent significant trough in August 2002 to over US66 cents in mid August 2003. To a major extent the A$’s rise has reflected a decline in the US$ as negative sentiment towards the US economy increased through the year. In addition Australia’s economic prospects have improved relative to those of the US economy, attracting global capital flows. Another factor attracting global capital into the A$ has been a widening of actual and expected interest rate differentials between the two economies. The A$’s performance against other currencies has been varied, appreciating Chart 3: Australian dollar exchange rate against by around 25% against the yen but a much lower 9% against the euro. It has major currencies also appreciated strongly against the Asian region currencies. Net of these TWI,Yen $US,Euro movements it has risen a substantial 20% against the trade weighted index. 85 0.70 The A$’s appreciation is due to a number of factors. These have included a 80 significant official interest rate differential with the US Federal Funds rate and the potential that this may widen given the softness in the US economy 75 0.65 relative to that of Australia. In addition, strong international demand for 70 Australian dollar bonds, reflecting the overall strength in the Australian 0.60 65 economy and interest rate differentials, has provided support. Upgrade of Australia’s foreign currency debt rating by Standard and Poor’s in February 6 0.55 and higher gold prices have also underpinned demand for the local currency. 55

50 0.50 45

40 0.45 May-99 Nov-99 May-00 Nov-00 May-01 Nov-01 May-02 Nov-02 May-03

Prospect September–November 2003 27 the big picture

Surprising buoyancy in key mineral and petroleum prices Geopolitical and war risk premiums which have been built into key metal and energy prices have Oil Price — just won't stay down greatly dissipated. Prices for many commodities remain buoyant however, reflecting world US$/bbl (WTI) economic developments, including supply and demand fundamentals. 40.00 Oil prices remain high 35.00 Following the American-led coalition’s operation in Iraq, it was widely believed that oil prices would tumble as a result of the freeing of the country’s oil resources, thereby, increasing supply, lowering prices and stimulating global economic growth. While the successful incursion 30.00 into Iraq saw oil prices dipping to US$25 per barrel for West Texas Intermediate (WTI) in late April and early May, since June prices have steadfastly hovered over the US$30 per barrel (WTI) mark. Part of the reason has been that while Iraq’s oil infrastructure had escaped the war 25.00 relatively unscathed, the occupation has seen it plunge into chaos. Other factors emanate from demand aspects, including the less than expected negative impact of the SARS epidemic, 20.00 Europe’s heatwave and low oil stocks in OECD countries.

… and OPEC is a key factor 15.00 Another very significant reason for continued high oil prices has been the Organisation of Jul-03 Jul-02 Jan-03 Jan-02 Jun-03 Apr-03 Feb-02 Nov-02 Dec-02 Aug-03 Jun-02 Feb-03 Mar-03 Aug-02 Oct-02 Sep-02 Apr-02 May-03 May-02 Petroleum Exporting Countries (OPEC). At OPEC’s conference in April 2003 members reviewed Mar-02 estimated supply/demand levels for the coming year. They anticipated an over-supply in view of Source: EIA (Official Energy Statistics from the US Government) the seasonal fall in demand during April, May and June and the continued sluggish world economy. It was therefore decided to reduce actual OPEC production by two million barrels per day (mb/d) to 25.4 mb/d, effective 1 June 2003. This decision was reviewed at an extraordinary OPEC conference in July 2003 where the supply/demand prospects for the fourth quarter of 2003 and for 2004 pointed to demand growth being less than the expected increase in supplies. The conference therefore decided to maintain production levels as agreed in April. Iron ore prices get a boost

Prices are also up for iron ore $UScents/dltu Iron ore price negotiations for the Japanese fiscal year in 2003 between Australian iron ore 45 producers and Japanese steel makers were again very prolonged. However, despite being Lump Fines Yandi Fines Robe Fines deadlocked since December 2002, in a global environment of rising demand an increase of 9% 40 was achieved by Western Australian iron ore producers. This followed Brazil’s Companhia Vale do Rio (CVRD), the worlds largest producer, striking a 9% price increase with European 35 steelmaker Arcelor in May 2002.

Fine ore prices will increase by 9% to US30.83c per dry long ton unit, lump ore by 8.9% to 30 US39.35c and Yandi ore by 9% to US28.98c for the Japanese financial year that began on 1

April 2003. 25 While the price increases in US dollar terms are reasonably high, the fact that the Australian dollar has appreciated significantly against the US dollar over the past year makes the 20 increases less impressive. For the future, strong Chinese demand for iron ore will be a key determinant of price developments over the next few years. 15 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 … and nickel keeps on rising too Source: TEX Report, AME Nickel prices have continued to perform strongly. The monthly LME average price reached US$8334/t in May and US$8878/t in June, up by 5% and 7%, respectively on the previous month. July saw prices ease slightly, averaging US$8801/t, but an upward trend re-emerged over the course of the month and prices have remained above US$9000/t since then. Nickel prices have been underpinned by strong demand for stainless steel. While the demand is waning in Europe, it continues to grow strongly in Asia, particularly China. China accounted Nickel continues to climb for 60% of growth in global nickel demand in 2002 and its consumption is likely to remain the US$/tonne main driver in nickel demand growth over the next few years. 9,500

9,000

…as supply is constrained 8,500 Nickel prices are also supported on the supply side, by a long, unresolved 12-week strike at Inco’s Sudbury plant in Canada. LME stocks are reported to have reached two-year lows of 17 8,000

000 tonnes compared with 26 500 tonnes when the strike started. Some analysts predict the 7,500 possibility of seeing LME stocks dropping to zero, with prices climbing to US$12 000/t if the strike at Sudbury persists beyond expectations. 7,000 6,500 Strikes aside, the trend in the nickel market is towards tight supplies in the next few years. Many nickel producers delayed plans to expand production from conventional sources during 6,000 the 1990s with the expectation that the new generation of pressure acid-leach projects would 5,500 increase nickel production. However, the new producers failed to attain full capacity. As no major new production is scheduled to come on stream for at least the next three years, in the 5,000 ul-02 ct-02 ar-02 ar-03 pr-02 pr-03 ay-02 ug-02 ov-02 ec-02 an-02 an-03 un-02 eb-02 eb-03 face of growing demand, intensified tightness in the nickel markets implies strong world prices. ep-02

Gold’s war premium dissipated, but prices rebound At the beginning of 2003 gold prices rose to almost US$375/oz in early February before retreating, after the war in Iraq, to US$322/oz. However, since May, during the last three

28 Prospect September–November 2003 Commodity trends

Compiled by DoIR’s Economic Analysis Branch

months, prices quickly climbed to consistently average above US$350/oz. Two particular factors responsible for gold’s resilience have been the value of the US dollar and producer A resilient gold price hedging. US$/oz Since early 2003, the US dollar has depreciated approximately 10% against other major 430 international currencies. This increased the purchasing power (by non-US countries) of US 410 dollar denominated products — including gold, in turn, supporting US gold prices. With low US interest rates weakening the US dollar, interest rates in the US have negatively 390 correlated with the gold price. This relationship can change, because, in the 1990s, US 370 interest rates and gold prices exhibited a pro-cyclical relationship, demonstrating that it takes more than interest rates and US dollar valuations to move gold prices. 350 Another, if not more important factor has been the continued record levels at which gold 330 mining companies are reducing their gold hedge books (de-hedging). But how long can this 310 last? For now, the major reasons supporting de-hedging continue to hold, including lower interest rates which reduce the attractiveness of forward selling and sentiment (particularly 290 from gold producers) about the near-term trend for gold remains positive (i.e. further 270 upward progress is widely expected). There is also persistent anti-hedging pressure from shareholders. This is partly due to a positive view on gold prices and also post-Enron 250 concerns about transparency and the overall predictability of earnings related to Jul 01 Jul 97 Jul 02 Jul 93 Jul 94 Jul 95 Jul 98 Jul 96 Jul 99 Jul 00 Jan 01 Jan 97 Jul 03 Jan 95 Jan 02 Jan 93 Jan 94 Jan 98 Jan 96 Jan 99 Jan 00 Jan 93 derivatives. Source: London PM fix Base metals — promising outlook for copper Compared with US$1587/t in April, the monthly average price of copper at LME was up by 8% over the last three months, reaching US$1710/t in July. The first half of August saw copper prices continue to float above US$1725/t. Continued growth in Chinese copper demand during the first half of 2003 (20% up year-on- year) was a primary driving force for price improvement. Chinese copper demand is Copper prices forecast to remain strong and renewed interest by investment funds is also lifting copper US$/tonne 2,000 prices. On the supply side, closure of the Port Kembla copper smelter for an undetermined period in early August and the decision by the majority of union members at BHP Billiton’s Escondida copper mine in Chile to start strike action has also supported prices. World copper market prospects appear rosier as the year progresses. According to AME 1,800 Mineral Economics, there was a deficit of 151 000 t in the copper market for the year to April, compared with a surplus of 196 000 t a year before. It is notable that BHP Billiton has decided to restart its Tintaya copper mine in Peru, which some analysts interpret as 1,600 the company anticipating the bottom of the copper market. Lead awakens, but drops again

1,400 Lead, the conventionally least popular metal in the base metal complex, could be ranked as a star performer over the last a few months. The monthly average price was US$515/t in July, up by 18% from US$437/t in April. However, the run stalled in August. For example, 13 August 2003 saw lead price fall by an exceptional 5% in a single day. 1,200 Jul-02 Jul-03 The sudden rise and collapse of lead prices had some analyst suspecting that the market Jan-03 Jun-02 Jun-03 Apr-02 Apr-03 Oct-02 Feb-02 Feb-03 Aug-02 Aug-03 Jan-02 Nov-02 Dec-02 Mar-02 Mar-03 May-02 May-03 Sept-02 Source: Metalprices was manipulated by investment fund action. Nevertheless, some changes to the fundamentals in the lead market also played a role in the rapid price rise since April. Notable improvements, according to Macquarie Research, include stabilisation in the demand for replacement batteries, reduced refined lead exports from China and a number of losses in refined production due to the combination of low treatment charges and relatively high scrap prices. Overall, the outlook for lead is now positive. Analysts believe The rise and fall of zinc and lead that demand is slowly starting to revive and the lead market is currently balanced. US$/tonne US$/tonne Macquarie Bank forecasts that lead price will reach US$540/t in 2004 and US$573/t in 900 550 2005.

Zinc …and zinc follows Lead 850 500 In May 2003, zinc prices started on an upward trend, with monthly average LME prices gradually rising from US$755/t in April to US$828/t in July. However, entering August, the rally ran out of steam. Latest data during August showed prices hovering under US$800/t.

800 450 Market analysts point out that rather than rising physical demand, the recent rally in zinc prices was mainly due to speculative interest from investment funds anticipating economic recovery in later 2003 or early 2004. The reality is that stock levels remain high. According to the International Lead-Zinc Study Group, commercial zinc inventories rose to 750 400 1.15 Mt at the end of June 2003, up 100 000t from the previous year. LME’s warehouse stocks alone have risen by nearly 7% since the beginning of the year, reaching 693 900t at the end of July. 700 350 Deutsche Bank have also reported that global zinc consumption rose 2% year on year in the Jul-02 Jul-03 Jan-02 Jan-03 Jun-02 Jun-03 Apr-02 Apr-03 Oct-02 Feb-02 Feb-03 Aug-02 Aug-03 Nov-02 Dec-02 Mar-02 Mar-03 May-02 May-03 Sept-02 first half of 2003. The major force in consumption growth was China but outside of China, Source: MetPrices zinc demand is still weak. High stock levels therefore persist, compounded by growth of refined production in Asia. So, in the short term the world zinc market is likely to remain in surplus. However, in the longer term, according to ABARE, zinc demand in countries other than China is likely to grow strongly from 2004 as world industry production recovers and demand-supply conditions improve.

Prospect September–November 2003 29

Committed Projects as at 6 August 2003

(25%), Mitsubishi (10%) and Shougang (5%), GOLD IRON ORE announced on 24 April 2002 a commercial-scale Telfer — Gold Mine (Expansion) Mining Area C — Iron Ore Mine HIsmelt process plant at Kwinana, near Perth. The NEWCREST MINING LIMITED BHP BILLITON IRON ORE PTY LTD first stage of the plant will produce around 400 000 Feasibility studies for the Telfer expansion have BHP Billiton and the State approved the t/a of pig iron from iron ore fines, coal and fluxes. identified a large low-grade resource (up to 200 Mt development of Mining Area C on 3 April 2002. Construction commenced in January 2003 with of sulphide and 50 Mt of oxide ore). Newcrest Mining operations at deposit C are planned to commissioning due to commence in late 2004. commenced construction of the mine extension in commence in Q3 2003. The product and capacity Expenditure: A$600 million late 2002, with commissioning scheduled at the expansion (PACE) project at Finucane Island was Employment: Construction: 320; Operation: 80 end of 2004 and full capacity to be reached by approved on 19 July 2002. Mt Gibson — Iron Pellet Plant 2005. Production is estimated at 800 000 oz/a of Expenditure: A$1 billion MT GIBSON IRON LTD gold and 30 000 t/a of copper over a 24-year Employment: Construction: 500; Operation: 200 Mt Gibson Iron Ltd will commence a 1.5 Mt/a iron period. Newcrest Mining will also build a new 18 IRON ORE PROCESSING ore mine at Tallering Peak, 130 km northeast of Mt/a processing plant. A major component of the Geraldton, in August/September 2003. The first project will be a 440 km gas pipeline from Port Kwinana — HIsmelt Commercial Iron overseas shipment of ore from Geraldton is Hedland to the minesite. Making Plant expected to occur in November 2003. The Expenditure: A$1.2 billion HISMELT CORPORATION LIMITED company is also evaluating the possibility of Employment: Construction: 1222; Operation: 620 HIsmelt Corporation, in a joint venture with Nucor commissioning a second mine at Mt Gibson about 300 km southeast of Geraldton by the end of 2004. This has the potential to double the company’s Significant resource projects underway or planned in output to 3 Mt/a. Expenditure: A$50 million Western Australia Employment: Construction: 80; Operation: 30 PROJECT VALUE (ESTIMATED A$) NICKEL CONSTRUCTION PERMANENT EMPLOYMENT Cosmos — Nickel Mine (sulphide ore) IRON AND STEEL JUBILEE MINES NL Mining Area C iron ore mine and infrastructure $1000m 500 200 A feasibility study based on the Cosmos Deeps ore Hope Downs iron ore mine $1050m 500 300 reserve of 520 000 tonnes at 7.2% nickel was completed in April 2001. The company is in the Fortescue (Cape Preston) mine and HBI plant $3000m 5000 1050 final stages of mining at the open pit. After an 18 Kwinana HIsmelt pig iron and steel plant $600m 320 80 month development program, underground Koolyanobbing iron ore mine expansion $25m 120 35 mining at Cosmos Deeps commenced in Q2 2003. Tallering Peak iron ore mine $50m 80 30 Based on current ore reserves, production will Sub total $5725m 6520 1695 continue to 2008. Exploration drilling is NICKEL/COBALT continuing in and around the Cosmos Deeps Mount Keith mine expansion $150 n/a n/a orebody. Ravensthorpe mine $950m 1000 300 Expenditure: A$33 million Employment: Construction: 15; Operation: 55 Cosmos Deeps $33m 15 55 Sally Malay $50m 150 120 Lake Johnston (Emily Ann/Maggie Hays) Sub total $1183m 1165 475 — Nickel Mine/s (sulphide ore) PETROCHEMICALS LIONORE AUSTRALIA (NICKEL) LTD LionOre Mining is developing the Maggie Hays Dampier Nitrogen ammonia–urea plant $900m 1000 130 deposit as an integrated development with its Burrup Fertilisers ammonia plant $630m 500 60 nearby Emily Ann mine near Lake Johnston. Japan DME — di methyl ether plant $1000m 1000 150 Construction at Maggie Hays commenced with a GTL Resources methanol plant $770m 500 60 boxcut being completed in April 2003, while the Methanex methanol plant (stage 1) $800m 1000 100 main decline and ventilation drive portals are Sasol Chevron gas-to-liquids plant (stage 1) $2000m 2500 200 currently under development. Mining at Maggie Sub total $6100m 6500 700 Hays is planned to commence in Q3 2004 and will double production from the region to about 10 to GAS 12 000 t/a of concentrate. The concentrate will be Gorgon project $6000m 2900 600 shipped to Inco Ltd of Canada under a life-of-mine LNG Train-4 and trunkline $2400m 2000 70 offtake agreement negotiated for the Emily Ann Train-5 LNG project $1600m 2000 70 mine. Sub total $10 000m 6900 740 Expenditure: A$28 million OTHER Employment: Construction: 25; Operation: 167 Alcoa Pinjarra alumina refinery optimisation $400m 1500 250 Sally Malay — Nickel Project Alcoa Wagerup refinery Train 3 expansion $1200m 1500 250 SALLY MALAY MINING LIMITED Boddington Wandoo gold mine expansion $500m 500 350 Construction at the Sally Malay project has Kemerton titanium dioxide pigment plant expansion $470m 60 200 commenced. A 120-person village is scheduled to Telfer gold mine expansion $1200m 1222 620 be operational in Q4 2003, with plant commissioning scheduled for Q3 2004. The first Kalgoorlie manganese dioxide plant $136m n/a n/a shipment of concentrate to the Jinchuan Group in Sunrise Dam underground gold project $87m n/a n/a China is planned for Q3 2004. Sally Malay plans to Mt Weld rare earths project $40m 100 35 employ both open-cut and underground mining Jaguar base metals $35m n/a n/a methods to extract the ore, which will be Various port upgrades $220m n/a n/a processed via a 535 000 t/a mill. A bulk Sundry projects — at least another $3000m 1500 300 nickel/copper/cobalt concentrate will be shipped Sub total $7288m 6382 2005 by road and exported through the upgraded port TOTAL A$30 296 million 27 467 5615 of Wyndham. The project is expected to have a mine life of 5.5 years on current resource estimates. n/a = not available Expenditure: A$50 million Employment: Construction: 150; Operation: 120

Prospect September–November 2003 31 Committed Projects Projects under consideration as at 6 August 2003 as at 6 August 2003

OIL & GAS DEVELOPMENTS AGRICULTURE GALLIUM North West Shelf — Project Mantinea Flats — Ord River Irrigation Pinjarra — Gallium Extraction Plant Expansion — 4th LNG Train, Second Scheme (Stage 2 Development) — GEO SPECIALTY CHEMICALS INC. Trunkline Mantinea Flats In March 2001, GEO Speciality Chemicals Inc of the WOODSIDE ENERGY LTD HENRY WALKER ELTIN LTD. USA announced plans to construct a major new Proposals by the NWS partners for additional The project consists of developing and servicing gallium metal extraction facility at Pinjarra, south of LNG Trains 4 and 5, and a second trunkline approximately 80 farms (about 4200 ha total) at Perth, on the site of the former Rhodia gallium and expansion of the Domgas plant, received Mantinea Flats for irrigated intensive horticulture chloride plant. The facility is planned to have an environmental approval in 1998 and 1999. The which will then be offered for sale. Following an ultimate capacity of 100 t/a of ‘4N’ gallium metal. The LNG expansion is based on growing Asian Expression of Interest process in late 1998, a gallium will be extracted from the Bayer liquor stream energy markets. In April 2001 the partners consortium headed by Henry Walker Eltin Limited generated in Alcoa’s adjacent alumina refinery. committed to development of the A$1.6 was mandated to carry out the development, subject Timing is dependent on favourable market conditions billion LNG Train 4. Construction of Train 4 to a successful feasibility study and associated and statutory approvals. commenced in Q3 2001. In December 2001 approvals. The studies have been deferred pending Expenditure: A$75 million the joint venturers approved expenditure for resolution of land access issues. Employment: Construction: 150; Operation: 50 the A$800 million second subsea trunkline Expenditure: A$108 million GOLD linking the offshore production facilities to Employment: n/a Boddington — Gold Mine (Wandoo the onshore gas plant on the Burrup Ord River — Ord River Irrigation Scheme Peninsula. Substantial progress has been Expansion) ORD STAGE 2 M2 AREA BGM MANAGEMENT COMPANY PTY LTD made in the construction of Train 4 and the The potential exists for a 30 500 ha irrigated laying of the second trunkline has Boddington Gold Mine is managed by BGM agricultural development immediately to the Management Company Pty Ltd on behalf of commenced. The trunkline is scheduled to be northeast of the existing Ord Stage 1 development. completed in April 2004 to coincide with the Newmont, AngloGold and Newcrest. BGM has The WA and NT Governments are committed to environmental approval for the expanded Wandoo completion of Train 4. investigating the project feasibility and plan to Expenditure: A$2.4 billion project, based on mining the extensive bedrock that consult with the local community before progressing underlies the mined-out oxide resource. The project Employment: Construction: 2000; Operation: the re-tendering of the Ord Stage 2 M2 area. 70 includes a dedicated 100 MW gas-fired power station. Environmental approval has been given for an Project go-ahead will be subject to commercial Petrochemicals/Chemicals irrigated agricultural project in the M2 area. Possible Burrup Peninsula — Ammonia Plant factors. crops include sugar, cotton, leucaena or horticultural Expenditure: A$500 million BURRUP FERTILISERS PTY LTD crops. Employment: Construction: 500; Operation: 350 Burrup Fertilisers is developing an ammonia Expenditure: n/a plant at the King Bay/Hearson Cove industrial Employment: n/a Sunrise Dam — Gold Mine — Underground area on the Burrup Peninsula, near Karratha. West Kimberley — Water & Land Development Around 760 000 t/a of liquid ammonia will be Resources Development Project ANGLOGOLD AUSTRALIA LTD produced and exported to India and other AngloGold Australia Ltd has announced it will begin a WESTERN AGRICULTURAL INDUSTRIES PTY LTD world markets for the manufacture of three-year underground development in Q4 2003 at Western Agricultural Industries Pty Limited (WAI) fertilisers. SNC-Lavalin Australia Pty Ltd, is the the Sunrise Dam gold mine to test the feasibility of was appointed in August 1997 to carry out feasibility EPC contractor and Sinclair Knight Merz the later committing to a full-scale underground studies into establishing an irrigated agricultural environmental management consultant for operation. The study will involve the development of industry based on the ground and surface water the project. The Harriet Joint Venture has an two declines totalling 9 km in the vicinity of previously resources of the Canning Basin and Fitzroy River agreement to supply 82 TJ/d of natural gas to defined reserves. The company expects to make a system. Results to date indicate that there is the project. Construction commenced on 30 decision on whether to proceed to full-scale sufficient potential to establish a 20 000 ha April 2003 and production is planned to start underground mining in early 2007. A positive decision groundwater-based irrigated cotton industry in an in Q3 2005. is expected to increase the life of the project to at least area situated about 200 km south of Broome. Expenditure: A$630 million 2012. Feasibility studies have been deferred pending Employment: Construction: 500; Operation: Expenditure: A$87 million resolution of land access issues. 60 Employment: n/a Expenditure: A$600 million TIMBER Employment: Construction: 250; Operation: 2000 HEAVY MINERAL SANDS Flynn Drive — Laminated Veneer BAUXITE/ALUMINA Jangardup South — Mineral Sands Mine Lumber Plant Pinjarra/Huntly — Alumina Refinery CABLE SANDS (WA) PTY LTD WESBEAM PTY LTD Optimisation Cable Sands has outlined a titanium minerals orebody WESBEAM Pty Ltd has reached an agreement adjacent to D’Entrecasteaux National Park. Feasibility ALCOA with the State, which has been ratified by and environmental studies are underway. A formal Alcoa is planning a A$400m optimisation of its Parliament, for the development of an A$80 proposal to mine has been put to Government. An Pinjarra alumina refinery that will add an additional million laminated veneer lumber (LVL) plant environmental impact statement for the project is 0.6Mt/a to raise total refinery capacity to 4Mt/a. at Flynn Drive, Neerabup. Construction of the expected to be released in the second half of 2003. Subject to environmental approval and market plant has commenced with first production Expenditure: A$40 million conditions, it is planned to bring the additional due in the second half of 2004. LVL is prepared Employment: Construction: 100; Operation: 50 capacity on stream at the end of 2005. by peeling pine logs into sheets, then re- Expenditure: A$400 million Kemerton — Titanium Dioxide Pigment aligning and gluing them to produce very Employment: Construction: 1000; Operation: 65 Plant Expansion strong engineered wood products. Timber MILLENNIUM INORGANIC CHEMICALS LTD feedstocks will be pine trees harvested from Wagerup/Willowdale — Alumina Refinery/Bauxite Mine Expansion Millennium proposes a major expansion of its State Government owned plantations at Kemerton titanium dioxide pigment plant to 190 000 Gnangara and other areas. The project will sell Train 3 t/a. The EPA approved the proposal in April 1999. A LVL and veneers to Australian and overseas ALCOA WORLD ALUMINA AUSTRALIA decision to proceed is dependent on market factors. markets. Environmental approval was granted in August 1995 Expenditure: A$470 million Expenditure: A$80 million to increase the mining rate and expand the Wagerup Employment: Construction: 500; Operation: 200 Employment: Construction: 200; Operation: refinery to 3.3 Mt/a by construction of a third Kwinana — Titanium Dioxide Pigment Plant 140 production train and round-out of total facilities. A 25% increase in capacity was completed in 1999. Expansion Commitment to build the third train is dependent TIWEST JOINT VENTURE on market and community factors. Environmental approval for the staged expansion of a Expenditure: A$1.2 billion pigment plant capacity to 180 000 t/a has been given. Employment: Construction: 1500; Operation: 250 A decision to proceed with further stages within this expansion is dependent on improved market conditions. Employment: Construction: 108; Operation: 98 Employment: n/a

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A U S T R A L I A N E N E R G Y Projects under consideration as at 6 August 2003

Pb. Annual throughput is planned at 1.2 Mt/a of ore IRON ORE to eventually produce over 80 000 t/a of soft lead OIL & GAS DEVELOPMENTS Hope Downs — Iron Ore Mine bullion. Gorgon (Carnarvon Offshore Basin) — HOPE DOWNS LIMITED Expenditure: A$48 million Gas and Condensate Field Hancock and Kumba have completed a feasibility Employment: Construction: 100; Operation: 80 CHEVRON AUSTRALIA PTY. LTD. study of the Hope Downs project. The alliance is now MANGANESE A range of alternative development scenarios progressing project finance, joint venture and market Kalgoorlie Region — Manganese Dioxide has been examined. The restricted use of Barrow agreements. Island is being considered by Government after Expenditure: A$1.05 billion Project an evaluation of environmental, social, Employment: Construction: 500; Operation: 300 HITEC ENERGY LIMITED economic and strategic aspects. An Information Koolyanobbing — Northern Expansion — HiTec Energy Limited proposes to produce Package and Summary on this evaluation was Iron Ore Mine electrolytic manganese dioxide (EMD) the power released on 1 July 2003. Potential markets source for alkaline batteries. The hydrometallurgical include domestic gas consumers in Western PORTMAN LIMITED plant will be a brownfield development at Cawse 50 Portman is proposing to increase iron ore production Australia and value-adding gas processing km north of Kalgoorlie, built around an existing 3- consumers such as LNG or GTL. Gas reserves at its Koolyanobbing operations to 6 Mt/a through the year-old electro winning cell house and SX plant. development of deposits located at Mt Jackson and have been enhanced by positive results from an The planned initial production of 10 000 to 14 000 exploration program in the West Gorgon area. Windarling, 50 to 100 km north of Koolyanobbing. t/a can be expanded to 23 000 t/a without further The company obtained a conditional environmental Development decisions by the Gorgon joint significant changes to the existing plant. It will use venturers will be subject to market go-ahead in April 2003 to proceed with the expansion manganese ore from Consolidated Minerals’ and is currently obtaining other necessary approvals. commitments. Woodie Woodie mine and manganese waste from Expenditure: A$6 billion Mining at the new deposits is scheduled to OMG’s Cawse nickel plant. commence in early 2004. Employment: Construction: 2900; Operation: Expenditure: A$136 million 600 Expenditure: A$25 million Employment: n/a Employment: Construction: 120; Operation: 35 Macedon/Pyrenees (Carnarvon Iron Ore Processing METHANOL Offshore Basin) — Oil/Gas Fields Fortescue (Cape Preston) — Mine and HBI Burrup Peninsula — Methanex Methanol BHP BILLITON PETROLEUM PTY LTD Plant Plant These are two adjacent, but separate offshore AUSTEEL PTY LTD METHANEX hydrocarbon fields within the West Muiron The Austeel consortium is promoting a 3.85 Mt/a EAF Methanex is considering the establishment of a 1.3 structure, about 50 km north of Exmouth. The steelmaking project, utilising the Fortescue magnetite Mt/a methanol plant on the Burrup Peninsula. Macedon gas field was discovered in 1992 by the deposits. Austeel plans to produce slab, hot-rolled and Feasibility and approvals work is underway for a West Muiron-3 well with a follow-up appraisal cold-rolled coil and galvanised steel at a new plant in decision on the project in Q3 2003. campaign in 1994. The Pyrenees oil and gas field Newcastle, NSW, that will receive feed from a new iron Expenditure: A$800 million was discovered in 1993. Development of the ore mine and HBI production facility at Fortescue. Employment: Construction: 1000; Operation: 100 Pyrenees heavy oil accumulation would likely only proceed as part of a larger heavy oil project Processing in Western Australia includes magnetic Burrup Peninsula — Methanol Plant concentration, pelletising and DRI processes. HBI will undertaking. Macedon is under consideration GTL RESOURCES PLC for domestic market opportunities. be shipped to Newcastle through new port facilities at GTL Resources proposes to build a plant to produce Cape Preston. Environmental impact assessment for Expenditure: n/a 1 Mt/a of methanol from mid-2005. The plant will Employment: Construction: 35; Operation: 5 the mine to HBI stage commenced in late 2000. Other be situated at Withnell East on the Burrup projects based on the Fortescue deposits (being Peninsula. On 17 October 2001, GTL Resources North West Shelf — Project Expansion promoted by parent company Mineralogy) involve an signed a Memorandum of Understanding with — 5th LNG Train export DRI/slab project and an export pellet project. Apache Corporation, Globex Energy Inc and Santos WOODSIDE ENERGY LTD Expenditure: A$3 billion Ltd for the purchase of 108 TJ/d of natural gas to Proposals by the NWS partners, for LNG Train 5 Employment: Construction: 5000; Operation: 1050 supply the plant. Products will be sold to Swiss and a second trunkline, and expansion of the KAOLIN company Vitol for trading on international markets. Domgas plant, received environmental approval in 1998 and 1999. The LNG expansion is based Thangoo (100km SSE of Broome) — Kaolin Expenditure: A$770 million Employment: Construction: 500; Operation: 60 on growing Asian energy markets. In April 2001 Mine the partners committed to development of the MANSFIELD MINING NL NICKEL A$1.6 billion LNG Train 4. Train 5 development is A major kaolin deposit, to be mined by Mansfield Mt Keith — Nickel Mine contingent on future market conditions. Mining NL as the Eaglehawk Kaolin Project, is WMC RESOURCES LTD Expenditure: A$1.6 billion situated on Thangoo pastoral station about 100 km WMC Resources is reviewing options to expand its Employment: n/a south-southeast of Broome in the West Kimberley. It is Mt Keith operations from 11 Mt/a to 14.3 Mt/a by Scarborough (Carnarvon Offshore one of Western Australia’s few high-grade deposits, late 2004, and then possibly to a mill throughput of Basin) — Gas Field with proven reserves of around 410 Mt. The quality of 16 Mt/a later in the project development. A the resource has been verified by independent bodies ESSO AUSTRALIA LTD feasibility study into the preferred expansion The field is located in 900 metres of water, 300 (CSIRO, Universities in Qld and SA). Once operating, options was completed during Q1 2003. the A$90 million project could produce and export km offshore in the Carnarvon Basin. Implementation options, including a possible Development will depend on reserves proving 700 000 t/a of kaolin and by-product minerals such as incremental expansion, are currently being silica sand, ilmenite and leucoxene. up to 7 to 11 Tcf of gas. Further evaluation work examined. Options for expanding output at is being undertaken, but currently there are no Expenditure: A$90 million Kwinana refinery are also being evaluated. Employment: Construction: 50; Operation: 130 near-to-mid-term development plans. Expenditure: A$150 million Expenditure: n/a LEAD Employment: n/a Employment: n/a Wiluna (Magellan) — Lead Mine Ravensthorpe — Nickel Mine Scott Reef/Brecknock (Browse Basin) MAGELLAN METALS PTY LTD BHP BILLITON — RAVENSTHORPE NICKEL — Gas Fields OPERATIONS PTY LTD The project is based on a lead carbonate (cerussite) WOODSIDE ENERGY LTD BHP Billiton’s Ravensthorpe Nickel Operations Pty deposit 30 km west of Wiluna. Magellan is wholly In February 2001, recoverable reserves for the Ltd is currently evaluating the production of up to owned by Ivernia West Inc (60%), a Canadian based Scott Reef/Brecknock project were upgraded to 220 000 t/a of mixed nickel/cobalt hydroxide to be resource company and the Sentient Resources Fund 20.49 Tcf of gas and 311 million barrels of processed at QNI’s Yabulu refinery in Queensland. (40%). A feasibility study completed in 2001 is being condensate after multi-disciplinary studies This will increase the annual production of nickel revised to take account of additional ore reserves, incorporating the results of drilling at Brecknock and cobalt at the refinery by 45 000 t/a (140%) and revised production strategies, and current market South. The fields are considered commercially 1400 t/a (70%) respectively. The feasibility study is conditions. The study is expected to be completed in viable in the future, but await firm development due to be completed by late 2003. Q3 2003 with construction to commence in Q1 2004. plans dependent on significant growth in Expenditure: A$950 million It is planned to produce metal on site through direct domestic gas and LNG markets. Employment: Construction: 1000; Operation: 300 reduction of the concentrate and export the entire Expenditure: n/a production through the port of Geraldton. Proven Employment: n/a and probable reserves total 11.1 Mt at a grade of 6.8%

34 Prospect September–November 2003 Tern/Petrel (Bonaparte Offshore Basin) — PETROCHEMICALS/CHEMICALS environmentally clean fuel for the power generation and transportation industries. The proposed plant Gas Field Barrow Island — Gas to Liquids Fuels will produce methanol for conversion into 1.7 Mt/a SANTOS LIMITED SASOL CHEVRON GLOBAL JOINT VENTURE of DME from around 220 TJ/d natural gas. Detailed The offshore Petrel gas field, discovered in 1969, is Sasol Chevron is considering Australia as a feasibility studies are underway. The project was located about 250 km west of Darwin on the WA/NT location for a plant to produce environmentally granted Major Project Facilitation status by the seabed border in the Bonaparte Basin. The offshore clean diesel fuel from natural gas. This gas-to- Federal Government. Environmental consultant, Tern gas field, discovered in 1971, is located about liquid fuels plant would initially produce about 50 Parsons Brinckerhoff (Aust) Pty Ltd, has commenced 300 km west of Darwin in WA waters in the Bonaparte 000 barrels a day of synthetic liquid product. work on obtaining environmental approval for the Basin. Field development options include installation Future expansions would provide up to 200 000 project. A commitment to proceed is expected in the of unmanned offshore production platforms with a barrels a day to supply both Australian and South latter half of 2003. Current planning is for the plant pipeline to a gas treatment plant south of Darwin. East Asian markets with total investments of A$10 to be operating by late 2006. The development possibilities for these fields have billion and utilising around 20 Tcf of gas over the Expenditure: A$1 billion been enhanced by recent significant discoveries by 25-year design life. Possible locations in the North Employment: Construction: 1000; Operation: 150 other parties nearby, which may provide tie-in West of Western Australia are being investigated. PLATINUM GROUP METALS potential for Petrel and Tern to service domestic gas Expenditure: A$2 billion customers. A recently completed technical review Employment: Construction: 2500; Operation: 200 Halls Creek — Panton Sill-Platinum will assist in focusing in 2003 on commercialisation Project of the fields. Burrup Peninsula — Ammonia Urea Plant PLATINUM AUSTRALIA LIMITED Expenditure: n/a The Panton platinum-palladium deposit is located DAMPIER NITROGEN Employment: n/a 60 km north of Halls Creek in the State's Kimberley Agrium Inc of Canada, Plenty River Corporation Whicher Range (Perth Onshore Basin) — region, and contains the highest grade of PGMs Ltd, Thiess Pty Ltd and Uhde GmbH of Germany known in Australia. A feasability study has found Gas Field have signed a project development agreement to that while the project is technically sound, it is not AMITY OIL NL complete a bankable feasibility study for the commercially viable at current metal prices and The Whicher Range gas field, located 21 km south of construction of a A$900 million ammonia and urea exchange rates. Further optimisation study work Busselton, was discovered in 1968. The four wells plant on the Burrup Peninsula near Karratha. The will continue so that the project is in the best drilled to date have confirmed a significant-sized gas world-scale plant will produce around 1.2 Mt/a of possible position to move forward when more field, but gas flow rates have been sub-commercial. granular urea and 100 000 t/a of ammonia. Urea is favourable conditions prevail. Recent work by Amity Oil to increase gas flow rates widely used as a fertiliser, while ammonia is used Expenditure: A$80 million from the extremely tight sands, including high in fertilisers, explosives and as a chemical Employment: Operation: 200 pressure injection of carbon dioxide, has increased feedstock. the possibility of commercial development. Under a Expenditure: A$900 million Munni Munni — Platinum Deposit farm-in deal, announced in April 2003, Korea Employment: Construction: 1000; Operation: 130 HELIX RESOURCES NL National Oil Corporation and Seoul City Gas Helix Resources NL and UK-based Lonmin PLC, the Company Ltd will earn a 35% interest by committing Burrup Peninsula — Dimethyl Ether Project third largest PGM producer in the world, announced up to A$6.7 million for co-funding exploration a joint venture covering the Munni Munni PGM activities, including drilling of a new well (Whicher JAPAN DME LTD. deposit with Lonmin to provide A$8 million in Range-5) which is currently scheduled to start in Japan DME Ltd, a joint venture of Japanese funding to October 2002 in return for 50% equity in September. If a commercial gas flow is obtained, the companies comprising Mitsubishi Gas Chemical the project. At the end of September 2001, the well would be completed for production. Company, Itochu Corporation, Mitsubishi Heavy indicated resource was 9.2 Mt at 2.9 g/t combined Expenditure: n/a Industries and JGC Corporation, plans to develop platinum, palladium, rhodium, and gold, 0.2% Employment: n/a a world-scale dimethyl-ether (DME) plant on the nickel, and 0.3% copper. Preliminary mining studies Burrup Peninsula near Karratha. DME is used as suggested a mining rate of combined open cut and an aerosol propellant and is a likely future underground production of 1.5 Mt/a. The partners reported in early 2003 that as a result of poor exploration results and a decreased palladium price, further activities had been postponed and Lonmin subsequently withdrew from the joint venture. Expenditure: n/a Employment: n/a RARE EARTHS Name Mt Weld — Rare Earths Operations LYNAS CORPORATION LTD Position A feasibility study is to be completed in Q3 2003. Lynas is planning to mine at an initial rate of 130 000 Organisation t/a ore, producing 33 000 t/a of rare earths concentrate. In phase 1, the concentrate will be exported to China for toll processing. Lynas will take Address all products from the downstream processing for marketing under the Rare Earths Direct “RED” Type of business Brand. Lynas is also evaluating the feasibility of secondary processing rare earths carbonate in Phone number Australia. Expenditure: A$40 million Employment: Construction: 100; Operation: 35 Email ZINC/COPPER Please tick the appropriate box Please add me to your mailing list to receive Western Australian Prospect. I would like to take out my 260 km north of Kalgoorlie — Jaguar — subcription for Base Metal Deposit one year at c $12 (incl. GST) c two years at $22 (incl. GST) c three years at $32 (incl. GST) PILBARA MINES LIMITED My cheque made out to the Department of Industry and Resources, is enclosed or please debit the amount to my credit card using the following details: Ongoing prefeasibility of Pilbara Mines Ltd’s Jaguar Type of card: c Visa c Bankcard c Mastercard base metal prospect, 54 km north of Leonora, has indicated a resource of 1.72 million tonnes. The development of the underground mine at a capital Credit card number Expiry date cost of A$30 - A$40 million is expected to have a 5 - 6 This form will become a tax invoice for GST purposes when payment is made year mine life with possible start up date of October Change of address (please mark the changes you require on one of your old labels). 2004. Please photocopy or cut coupon and mail to: Expenditure: A$35 million Prospect subscriptions • Information Centre, Department of Industry and Resources Employment: n/a Mineral House, 100 Plain Street, East Perth, Western Australia 6004

Prospect September–November 2003 35 As at August 2003 Major Resource Development Projects: Western Australia

Loxton Shoals N N ExeterOONorfolk Troubador MontaguePitcairnOOMutineer Bard N N INSET B Eaglehawk Egret!Hermes Sunrise Searipple O ! Lambert NKelp Deep Capellauu O uAngel Jahal u ! Cossack O Kuda Tasi Chudditch Perseusu uNorth !O Gaea !Wanaea Laminaria East N Dockrell u Rankin !Legendre North Buffalo OO Krill O Elang-Kakatua KeastuuGoodwyn ! Echo/Yodeluu Sage Burrup N Hingkip Goodwyn South/Pueblo;;Tidepole Legendre @Ammonia UraniaN ! South ! Bayu-Undan ;Dixon/West Dixon @Ammonia-urea NJansz N Saffron NGeryon N Iago/N Tryal Rocks 6Desalination OliverN N Reindeer N Audacious uWilcox uCaribou @ Dimethyl Ether Tenacious ! Corvus N O Maenad Orthrus @ Synthetic Fuels Maple N Jabiru N N Wandoo! N O Challis uChrysaor/Dionysus O and Lubricants Puffin O u West Tryal Rocks Tusk Swan Oryx O OStag @ LNG Padthaway OTalbot NO N Chamois @Methanol Tahbilk N Montara N Petrel John BrookesN SEE INSET C N Crux Cape Lambert Prometheus/Rubicon Gorgonu q q Maitland N Dampier SparN N Tern s Dampier salt Dinichthys East Spar N Karratha Gorgonichthys N OCornea NNN Titanichthys NScott Reef Brewster Blacktip N Woollybutt O ! Pasco nRadio Hill N Brecknock I ! Gwydion Fortescue K Munni Munni N Brecknock South Flinders Shoal ! I Turtle O Austeel DRI/HBI b Mitchell Plateau Chinook/Scindian Mardie INSET C ! Chervil Campbellu Griffin O ! N Coniston O South Chervil !O Nasutus Wonnich EndymionuuSinbad Nimrod N ; Ord Stage 2-M2 ONovara Australind! u Cadell NUlidia Wyndhamq 6 EnfieldOVincent Yammaderry!!Crest BambraN NLinda Ord Stage 2-Mantinea Flats 6 O Pyrenees Harriet BLeeN 6 ! OOuttrimCowle!Saladin OC uuMonty Koolan Island Laverda ! s Pipeline Rose N ! Skate Varanus Island A Cockatoo Island II Ord Stage 1 N ; Blencathra Robe River N.Gipsy!uJosephine Scafell !Roller Rosette u Lake Argyle Hydro 6 MacedonO CoasterO sOnslow I Agincourt! ! Gipsy!uBaker Leatherback r Natural Ga Alkimos/Tanami OGibson/S.Plato N pie Tubridgi /Simpson !Little Sandy/Perdika/ N Victoria KIMBERLEY O ! Hoover Argyle d Perth-Dam Barrow Double N Island Island Derbyq Point Torment Barrow Island Lloyd Boundary s Exmouth NNarvik O West Terrace OO Sally Malay n Sundown O dEllendale Broomeq Blina Panton Sill K Nammuldi/Silvergrass I Brockman No. 2 I

O Rough Range 0 100 j Paulsens Z Pillara Zn Pb 200 km 6 West Kimberley

RESOURCE SYMBOLS Bauxite-Alumina a Alumina refineries b Mines and deposits SEE INSET B Chemicals / Petrochemicals / Petroleum Port Hedland @ Processing plants / refineries Scarborough N q Port Hedland Salt N Natural gas field Boodarie HBI Y O Oil field y Hitec EMD I ! Natural gas / oil field Yarrie u Natural gas / condensate field Z Whim Creek Cu ; Natural gas / oil / condensate field Chromite Wodginat Z Panorama Zn Cu c Mines and deposits Coal Woodie Woodier h Coal mines and deposits Z j Telfer Au Cu Nifty Cu ? Lignite mines and deposits PILBARA Copper-Lead−Zinc rAnt Hill Z Maroochydore Cu Co Z Mines and deposits Diamonds Marillana Creek Yandi/BHPB d Mines and deposits Marandoo I I Yandicoogina/HI Tom Price I Gold I j Mining Area C II Hope Downs Mines and deposits West IRhodes Ridge Gypsum Paraburdoo I AngelasI x Eastern Range I I IOrebody 23 & 25 Mines and deposits ChannarI Giles Mini I IJimblebar Heavy mineral sands j Mt Whaleback c Coobina m Mines and deposits — titanium-bearing sands Mt Olympus G Mines and deposits — garnet-bearing sands J Ti02 pigment and synthetic rutile plants Iron ore I Mines and deposits Lake MacLeodqx Lake MacLeod s Y Downstream processing plants Limestone−Limesand 4 Mines and Deposits Carnarvon C Cement plants Plutonic j Manganese ore r Mines and deposits y Downstream processing plants Nickel n Mines and deposits v Smelters and refineries Shark Bayqs Jundee/Nimary j Phosphate Magellan Pb Z P Mines and deposits Bluebird Platinoids m Coburn j Wiluna j Weld Range I K Mines and deposits Honeymoon Well n Rare earth elements R Gidgee j n Mt Keith Mines and deposits Big Bell j j Bronzewing/Mt McClure Salt Yakabindie n s n Production facilities / pans Cosmos Silica − Silica Sand Leinster n w Mines and deposits Hill 50 Bulchina Agnew j j Darlot Port Gregory j j X Silicon smelters Kwinana/Rockingham INSET A ITallering Peak Lawlers j jThunderbox G V Windimurra Marshall Pool Talc q AIS Jetty n T Mines and deposits a Jaguar-Teutonic Bore Z Murrin Alumina Refinery jKirkalocka Granny Smith Tantalum @ Oakajeeq Tarmoola j Murrin BP Oil Refinery Narngulu Synthetic Z Golden Grove Zn Cu n j P t Mines and deposits q − C Cement and Lime Chandala Geraldton JRutile jMinjar Sons of Gwalia j R Mt Weld Vanadium Titanium J Mount Horner j Sunrise Dam V Mines and deposits @ Chlor Alkali Synthetic Yardarino Nu I Koolanooka Mt Ida Timoni j Dongara O Hovea NON-MINERAL PROJECTS @ Chemicals Rutile O Three Springs @ 1 Cliff Head OOm T 6 Irrigation/water schemes Chemicals/ Jingemia uDongara I Flynn Dr N Davyhurst q Major port handling facilities Fertilizers Beharra Springs/ j Windarling Range j jComet Vale 8 @ um Eneabba I Major power stations Fused Alumina PERTH North Beharra Mt Gibson Goongarrie n 1 Downstream timber processsing plant • Springs Woodada Cawse j Carosue Dam @ Fused Zirconia Mt Jackson I Paddington n GAS PIPELINE Y HIsmelt Lady Ida n Black Swan qFremantle j j Kanowna Belle/Red Hill @ LPG Mt Pleasantj jj OPERATING PROJECTS ARE SHOWN IN BLUE Cooljarloo m Koolyanobbing I Kundana/j n Bulong v Nickel Refinery Frogs Leg j j Super Pit POTENTIAL PROJECTS ARE SHOWN IN RED White Foil j v Kalgoorlie Ni Smelter 8 Power Station 0 50km j j PROJECTS ON CARE AND MAINTENANCE ARE SEE INSET A Coolgardie j Jubilee SHOWN IN PURPLE @ Sodium Cyanide Westonia j Kambalda New Celebration n J Titanium Pigment j j Long/Victor n St Ives Marvel Loch/ j t Bald Hill @ Zirconia Southern Cross Yilgarn Star Miitel n aPinjarra PERTH• ab Huntly Pinjarra Gallium j Boddington Au Cu Emily Ann/Maggie Hays n j Central Norseman m Waroona b nForrestania Kemerton aWagerup Saddleback ? O'Sullivans @ Chlor Alkali Kemerton Sandlewood X Silicon Smelter w ? Western m a Scaddan Australia J Titanium Worsley Rav 8 n Pigment qBunbury h8 Collie n 8 m Ewington h Premier Ravensthorpe/BHPB q 1 Dardanup Dardanup h Muja Esperance Capel m Collie Pig IronY 8 Jangardup Capel SyntheticJ m Gwindinup m 1 Manjiump 1 Donnybrook m Rutile m Jangardup South I Southdown Tutunup m Yoganup Whicher Range N tGreenbushes Mirambeena1 Albany

0 100 200 400 300 km COMMON USER FACILITY

OPEN FOR BUSINESS

World Class fabrication, assembly and loadout facilities

· Protected and dredged harbour · Australia's largest portal crane with a · A 15,000 tonne service and heavy lift wharf 150-tonne capacity, and a range of 20 tonne and 50 tonne auxiliary overhead cranes · A 3,000 tonne loadout wharf · 40 hectares of laydown / assembly area · A large sophisticated mobile fabrication hall · Workers amenities and project offices

License only the facilities you need, for the period you want. Terms to suit large or small projects

For more information contact: Mr Michael Bailey, General Manager JBFM Babcock JBFM babcock tel +618 9437 0500 - fax +618 9437 0555 [email protected] www.australianmarine.complex.com.au