Business case: Solutions to bulk mineral export infrastructure on Spencer Gulf

Prepared by the Resources Infrastructure Taskforce September 2015

www.statedevelopment.sa.gov.au 1 Contents

Executive summary 2

1 Business case objectives 6

2 Strategic context 7

2.1 Government priorities 8

2.2 Overview of South Australia’s resources sector 8 2.2.1 Growth and activity 8 2.2.2 Global iron ore environment 8

3 South Australian Iron Ore Strategy 9

4 Spencer Gulf mining projects and port infrastructure proposals 10

4.1 Key iron ore projects and ports proposals 10

4.2 Proposed ports and developmental capacity 14

4.3 Other Spencer Gulf iron ore projects 16

5 Considerations for ports development 18

6 Shared port infrastructure analysis for key iron ore projects 19

6.1 Far North Region 19 6.1.1 Existing Whyalla port – Arrium Limited 19 6.1.2 Proposed Port Bonython port – Flinders Ports Consortium 21

6.2 Eyre and Western Region 22 6.2.1 Cape Hardy port – Iron Road 22 6.2.2 Port Spencer – Centrex 23 6.2.3 Lucky Bay – Sea Transport Corporation 23 6.2.4 Port Lincoln port – Flinders Ports 23

6.3 Yorke and Mid North (Braemar) Region 24 6.3.1 Myponie Point facility 24 6.3.2 Port Pirie port 25 6.3.3 Port Adelaide – Outer Harbor 26

7 Strategic fit – economic evaluation 27

7.1 Economic impacts 27

7.2 Existing ports’ economic contribution 27

7.3 Impacts of infrastructure supply chain options 27

7.4 Social and environmental impacts 28 7.4.1 Environmental impacts 28 7.4.2 Community impacts 28

2BUSINESS CASE: SOLUTIONSBUSINESS TO BULK CASE: MINERAL SOLUTIONS EXPORT TO BULKINFRASTRUCTURE MINERAL EXPORT ON SPENCER INFRASTRUCTURE GULF ON SPENCER GULF 8 Multi-user access frameworks 29

8.1 Government objectives for access to ports and associated infrastructure 29

8.2 Greenfields port development proposals 29

8.3 Brownfields port development proposals 30

9 Government support options 31

9.1 Whyalla port 31

9.2 Greenfields port proposals 31 9.2.1 Key issues 31 9.2.2 Available support options 31

9.3 Criteria for government support 33

10 Preferred bulk mineral export infrastructure solutions 35

10.1 Port priority assessment matrix 35

11 Key risks 38

12 Observations and recommendations 38

12.1 Summary 40

13 Implementation and RIT activities 41

This business case recommends preferred solutions for the provision of bulk mineral export infrastructure on Spencer Gulf, and particularly solutions for its western side.

1 Executive Summary

South Australia’s Regional Mining Infrastructure Plan (RMIP), released in June 2014, outlined a range of bulk mineral export infrastructure proposals that could meet the needs of mine developers in regions surrounding Spencer Gulf.

In preparing this business case, the Regional Infrastructure Taskforce (RIT) assessed a number of proposals included in the RMIP that outlined the potential to meet forecast demand from existing and proposed bulk commodity iron ore projects in regional South Australia

In particular, this business case considers opportunities for, and the impacts of, various infrastructure and port options that could support the following five iron ore projects in the Spencer Gulf region. • Central Eyre Iron Road Project (Iron Road) • Eyre Iron Joint Venture (Centrex Fusion) • Hawsons Iron Project (Carpentaria) • Royal Lodestone (Braemar/Royal) • Kimba Gap (Centrex Kimba Gap).

RIT examined factors that have influenced these proposals and the feasibility of their introduction. For example, South Australia’s iron ore projects, along with others across Australia and the world, currently face investment attraction challenges because of the price outlook for iron ore on the global market, iron ore benchmark pricing and related issues such as infrastructure planning and construction timeframes.

Since the RMIP’s release, the international spot price of many commodities, including iron ore, has declined significantly, for reasons including increasing global iron ore supply and changes to China’s steel production. By September 2015, the price of iron ore had dropped to well below that identified in the RMIP’s ‘low growth scenario’ and this has challenged the prospectivity of the mining projects it considered, as well as planning for any supporting infrastructure.

The RIT is developing a South Australian Iron Ore Strategy, partnering with industry to promote the development of iron ore magnetite resource projects and quality product to global steelmaking markets, and position the state as a preferred supplier.

The strategy will include investigating the establishment of a Magnetite Centre of Excellence in South Australia for research and development, that will focus on innovation and improvements in extraction and processing of magnetite for global steelmaking consumption.

Business case In this business case, each port option is considered a ‘greenfields’ development where there is no existing port facility or a ‘brownfields’ development where an existing port facility could be upgraded to accommodate increased demand. The potential for each proposal is also examined in terms of its capacity for shared use.

The business case recognises the significant economic benefits that emerge for local communities when mines and associated infrastructure are built and operate in a particular region. The overall impact will be proportional to the size of a project or projects. For example, the Iron Road Central Eyre Iron Project would be expected to have the biggest economic impact on the Eyre Peninsula, while the Braemer/Royal Resources project would have the largest effect in the Yorke and Mid North (Braemar) regions.

As noted in the RMIP, viable bulk commodity port solutions will allow for access by multiple users. For the greenfields port options, and for any development of brownfields ports, including Port Pirie, a competitive multi-user access framework could be developed under existing legislative mechanisms. However, for the existing Whyalla port, which is subject to indenture legislation, a different approach would be needed to introduce third-party access.

The business case research assessed 10 options for ports on Spencer Gulf that could support future demand for iron ore bulk mineral exports. Table 1 (page 4) provides a summary of the findings and the criteria used to assess these options. Importantly, no single port was identified as capable of servicing all the potential bulk commodity mining developments in South Australia.

2 BUSINESS CASE: SOLUTIONS TO BULK MINERAL EXPORT INFRASTRUCTURE ON SPENCER GULF Port proposals The following port locations were identified as the most likely to meet potential future demand for bulk minerals exports from the Spencer Gulf region (as at September 2015): • the existing Whyalla port, in the northern Spencer Gulf, owned by One Steel Manufacturing Pty Ltd (part of the Arrium Limited Group) • the planned Cape Hardy port on central eastern Eyre Peninsula, proposed by Iron Road Limited • the planned Myponie Point facility on northern Yorke Peninsula, proposed by Braemar Infrastructure Pty Ltd.

A number of other existing and proposed ports, including smaller volume operations, could be developed to support bulk commodities exports and local supply chain requirements when market conditions improve. These include the facility at Port Pirie and the proposed port at Port Bonython.

The Whyalla port – which is owned by Arrium Limited and currently has excess available capacity and the potential for expansion – could provide an opportunity for the export of iron ore from developing projects in the regions, both on the western and eastern sides of Spencer Gulf.

The RIT notes that the ongoing economic status of, and investment in, a mining project is the single most critical issue that would be considered by potential investors in associated infrastructure. It is unlikely that port infrastructure itself, without confirmed demand from a mining operation, will drive project investment and development.

Government’s role in supporting port development The infrastructure investment market has informed the RIT that it would welcome government support options to accelerate greenfields and brownfields port developments. Non-financial and financial government support options could be available for eligible proposals that meet criteria based on: • commercial viability for life of mine • confirmed project funding with a strategic partner • customer off-take agreement for mine products • preferred port location for export of product • timing for development (feasibility/approvals/construction) • aggregation options for projects.

The RIT’s analysis and the current state of the iron ore commodity cycle suggest that government’s role in supporting the development of viable port infrastructure should be to ensure that a project’s planning and regulatory issues are resolved so it can proceed quickly when market conditions are favourable. For example, RIT’s engagement with industry suggests that mine proponents and potential infrastructure investors would welcome integrated planning and infrastructure policy that allowed for the coordinated development of economic infrastructure corridors.

Government might also consider financial support or incentives, on a case-by-case basis, to help proponents reduce their risk and attract investment. Figure 1 demonstrates a possible decision-making process for providing support.

Figure 1: Gateway approach for government support

Government criteria Yes - prepare detailed Government considers - commercial viability of mine business case support options Project proposal - confirmed strategic partner (according to investment risk profile) (considered on - customer offtake agreement - non-financial case-by-case basis) - defined port location - financial - development timeframe No - private sector - aggregation of projects develops port Normal case Private sector management support develops port

In summary, the RIT’s research and analysis has identified potential port solutions to meet future demand for bulk minerals exports from the Spencer Gulf region for government to consider in the existing economic climate. The business case also offers suggested steps for implementing the preferred solutions.

3 Table 1: Port priority assessment matrix – analysis of port options

Criteria* Shore to ship Commerciality

Capacity Iron ore Cost to transport ore Construction (planned export to port lead time max committed/ Port operator throughput) potential Eyre Far N Brae Port or proponent users

Far North Region

Whyalla Arrium Transhipping ✓✓✓ 1C/3P ✓✓ ✓ ✓ ✓✓✓ Bulk loading (Handymax)

Port Flinders Ports Bulk loading ✓✓✓✓ 0C/3P ✓✓ ✓ ✓ ✓✓ Bonython

Eyre and Western Region

Cape Hardy Iron Road Bulk loading ✓✓✓✓ 1C/1P ✓✓ ✗ ✗ ✓

Port Spencer Centrex Transhipping ✓✓ 1C/0P ✓✓ ✗ ✗ ✓✓

Lucky Bay Sea Transport Transhipping ✓ 0C/1P ✓ ✗ ✗ ✓✓✓

Port Lincoln Flinders Ports Transhipping ✓ 0C/1P ✓✓ ✗ ✗ ✓✓✓

Yorke and Mid North/Braemar Region

Myponie Braemar/Royal Bulk loading - ✓✓✓✓ 1C/2P ✗ ✓ ✓✓ ✓✓ Point^ Slurry

Port Pirie Flinders Ports Transhipping ✓✓ 0C/2P ✗ ✓ ✓✓ ✓✓

Port Havilah Havilah Transhipping ✓✓ 1C/2P ✗ ✓ ✓✓ ✓ Resources

Port Flinders Ports Containerised ✓ 0C/2P ✗ ✓ ✓ ✓✓✓ Adelaide (rotainer) – Outer Harbour

* Descriptions ^ Myponie Point is a floating offshore processing, storage and offloading facility, not a true port facility. Slurry is dewatered prior to loading.

Shore to ship Transhipping to deep water Bulk loading to deepwater Containerised - rotainer • Moderate capital expenditure • High capital expenditure • Mod capital expenditure • High operating expenditure • Low operating expenditure • High operating expenditure • High shipping economies of scale • High shipping economies of scale • Moderate shipping economies of scale • Moderate lead times to construct • Long lead times to construct • Short lead time to construct • Long load times • Short load times

Commerciality – issues affecting a port project’s commercial aspects • Capacity – maximum capacity as indicated in known plans: ✓ <5 Mtpa; ✓✓ 5-20 Mtpa; ✓✓✓ 20-40 Mtpa; ✓✓✓✓ 40 + Mtpa • Iron ore committed/potential users – the number of committed users for exporting iron ore from the port. This could be existing users (e.g., Arrium) or project proponents (e.g., Iron Road), or the number of potential users if it was a shared facility – e.g., Centrex via Cape Hardy. Note: each potential user may have multiple options in this table – no exclusivity is assumed. It is assumed that an access regime would be introduced if a port had more than one user.

4 BUSINESS CASE: SOLUTIONS TO BULK MINERAL EXPORT INFRASTRUCTURE ON SPENCER GULF Criteria* Strategic fit and economic development Overall rating RMIP Access to Potential Significant Import alignment existing multi regional capability infrastructure commodity economic Port operator benefits Port or proponent

Far North Region

Whyalla Arrium ✓✓✓ ✓✓✓ ✓ ✓✓✓ ✓ ✓✓✓

Port Flinders Ports ✓✓ ✓✓ ✓ ✓✓ ✓ ✓✓ Bonython

Eyre and Western Region

Cape Hardy Iron Road ✓✓✓ ✗ ✓✓ ✓✓✓ ✓ ✓✓✓

Port Spencer Centrex ✓ ✗ ✓✓ ✓ ✓ ✓

Lucky Bay Sea Transport ✓ ✓ ✓✓ ✓ ✓ Niche

Port Lincoln Flinders Ports ✓✓ ✓✓ ✓✓ ✓ ✓ Niche

Yorke and Mid North/Braemar Region

Myponie Braemar/ Royal ✓✓ ✓ ✓ ✓✓✓ ✗ ✓✓✓ Point^

Port Pirie Flinders Ports ✓✓ ✓✓ ✓✓ ✓✓ ✓ ✓✓

Port Havilah Havilah ✓ ✓ ✓✓ ✓ ✓ Niche Resources

Port Flinders Ports ✓✓ ✓✓✓ ✓✓ ✓ ✓ Niche Adelaide – Outer Harbour

• Cost to transport ore to port – relative ranking of transport costs between regions to the port: ✗ cost is prohibitive; ✓ cost is moderate; ✓✓ cost is relatively low • Construction lead time – estimated time of construction from time of approval for a mine using the port: ✓ >36 months; ✓✓ 18-36 months; ✓✓✓ <18 months

Strategic fit and economic development – alignment of existing strategies and economic development opportunities • RMIP alignment – qualitative assessment of alignment with RMIP to aggregate volume in and out of port and link with other facilities: ✓ slight alignment; ✓✓ moderate alignment; ✓✓✓ strong alignment • Access to existing infrastructure – qualitative assessment of physical access to transport/logistics and utilities: ✗ no access; ✓ limited access; ✓✓ moderate access; ✓✓✓ close access • Multi commodity: ✓ minerals only; ✓✓ minerals and grain • Regional impact – qualitative assessment of positive regional impact of development: ✓ slight impact; ✓✓ moderate impact; ✓✓✓ substantial impact • Import capability: ✗ no import capability; ✓ some import capability • Overall rating – qualitative assessment of port based on all criteria: ✓ partly meets needs; ✓✓ moderately meets needs; ✓✓✓ strongly meets needs; Niche – port with small capacity to meet local need

5 1 Business case objectives

This business case recommends preferred solutions for the provision of bulk mineral export infrastructure on Spencer Gulf, and particularly solutions for its western side.

It follows the Regional Mining and Infrastructure Plan, released in June 2014, which recommends high-capacity direct loading ports for the three identified major regions: Eyre and Western, Far North, and Yorke and Mid North/Braemar.

The business case considers: • five key iron ore mining project proposals that require infrastructure and port developments • alternative shared supply-chain infrastructure and port options for the five proposals • development options for existing ports, including Whyalla and Port Pirie • how each port proposal aligns with RMIP recommendations • potential economic impacts of each shared port proposal • financing and funding models for port infrastructure developments • multi-user access frameworks that may be required for shared ports • how government might support a preferred port solution • port solutions and government intervention options • how preferred solutions could be implemented • next steps in planning and providing port infrastructure in 2015 and 2016.

The five key projects assessed were: • Central Eyre Iron Road Project (Iron Road Limited) • Eyre Iron Joint Venture (Centrex Metal, Fusion Project) • Hawsons Iron Project (Carpentaria Limited) in Western NSW • Royal Lodestone (Braemar Infrastructure Pty Ltd / Royal Resources) • Kimba Gap Project (Centrex Metals).

SOUTH AUSTRALIA’S SHARE OF AUSTRALIA’S IRON ORE RESOURCES 26 >14 Fe BILLION TONNES Iron 55.845 IRON ORE

6 BUSINESS CASE: SOLUTIONS TO BULK MINERAL EXPORT INFRASTRUCTURE ON SPENCER GULF 2 Strategic context

South Australia is richly endowed with mineral, oil and gas and renewable energy resources. Global demand for these resources continues to grow and South Australia is near growing markets in Asia.

Appropriate regional supply chain infrastructure is necessary to help mine proponents plan and develop their proposals and, when their projects are operational, transport their product for export to market.

The RMIP provides a series of recommendations to guide investment in rail, ports, roads, electricity and water supply to support the resource sector across the State. It identifies the fact that existing port infrastructure in South Australia (and associated supply-chain infrastructure links from mines to ports) will not adequately handle the projected volumes of freight that would result from forecast bulk commodity demand (mainly iron ore). It also notes that there are no high capacity ports able to accommodate and directly load large bulk carriers including Capesize vessels. This is a factor considered essential if the state’s mining sector is to effectively compete in global markets on price. Coober Pedy The report identifies three key regions in which there would be demand for resources-related infrastructure development, as indicated in Map 1: • Far North • Eyre and Western • Yorke and Mid North/Braemar.

The RMIP recommends that any assessment of infrastructure options should consider those that would best meet sector and regional development needs and, if appropriate, focus on multi-user rather than single-user solutions. Roxby Downs The RMIP provides target timelines for delivering high-capacity port developments to meet forecast demand on Spencer Gulf – 2018 on the western side, and 2019 on the eastern side.

Map 1: Spencer Gulf major iron ore mine projects and ports

FAR NORTH REGION

Ceduna Port Augusta Maldorky

Lodestone Hawsons Whyalla Port Bonython (NSW) SOUTH WALES NEW Central Eyre Middleback Iron Project Razorback Ranges Ridge Kimba Gap Port Pirie EYRE & WESTERN Iron Chieftain Bungalow Lucky Bay YORKE & REGION Myponie Point Wilgerup MID NORTH Wallaroo REGION Operating Mines Cape Hardy Port Havilah Renmark Approved Mines Port Spencer Fusion Development Projects Prospects Murray VICTORIA Port Lincoln Port Adelaide Basin Proposed Port Existing Port ADELAIDE Highways Map is illustrative only and not drawn to scale. Rail Not all developments shown on map

Kingscote Victor Harbor KANGAROO ISLAND Penneshaw

Bordertown

7 Kingston SE

Coonawarra

0 50 100 Mount Gambier

km 2.1 Government priorities

In examining the proposed port solutions, the RIT has considered the South Australian Government’s Strategic Priority of Realising the benefits of the mining boom for all and Economic Priority 1 – Unlocking the full potential of South Australia’s resources, energy and renewable assets.

This business case supports achievement of one of the 12-month targets that support progress in Economic Priority 1: Confirm the preferred commercial solutions to bulk mineral export infrastructure on Spencer Gulf.

2.2 Overview of South Australia’s resources sector

2.2.1 Growth and activity A rise in commodity prices contributed to the South Australian mining sector growing substantially between 2004 (when there were five operating iron ore mines, including three producing ore for export) and early 2014 (when there were 20 mines operating, with 15 exporting). The State exported minerals valued at $4.79 billion in 2013-14.

The iron ore price peaked in 2011 at US$186 a tonne. In 2014, two companies exported iron ore from South Australia: • Arrium Limited, from operations in the Middleback Ranges (Eyre and Western) and its Southern Iron project at Peculiar Knob in the Far North. Iron ore exports reached almost 14 million tonnes per annum (Mtpa). Arrium has since reduced exports to 9 Mtpa, having closed its Southern Iron operation due to declining iron ore prices. • IMX Resources exported 2 Mtpa of iron ore from the Cairn Hill deposit through the Port of Adelaide. IMX sold its Cairn Hill mining operation in early 2015 and exports have now ceased – again, due to lower commodity prices.

South Australia now has 10 fully operating mines; four approved or under construction; and more than 20 projects at various stages ranging from advanced exploration to bankable feasibility. Underpinning production, and critical to a sustained minerals investment pipeline, is an active exploration sector, with 793 exploration licences covering 33 per cent of the State.

2.2.2 Global iron ore environment Australia ranks second in the world in iron ore production. It produces approximately 660 Mtpa of the global production total of about 2,000 Mtpa. Most Australian iron ore is exported as haematite from Western Australia to China, Japan and South Korea.

Iron ore projects currently planned for, or proposed, in South Australia focus on exporting magnetite and range in size from anticipated production of 5 Mtpa to 25 Mtpa and beyond. The RMIP indicates that bulk commodity mineral production, including iron ore, could reach approximately 95 Mtpa by 2032 under a ‘mid growth’ scenario, which represented a price of US$105 per tonne @ 62% Fe. At that time (in 2013), iron ore prices varied between US$135 and US$155 per tonne, and the value of the Australian dollar ranged between US$1.05 and US$0.90.

However, the global iron ore commodity spot price has since reduced to the point where it sat at about US$56 a tonne in September 2015 – below the RMIP’s ‘low growth’ scenario of US$70.12 a tonne. While the lower Australian dollar (valued at about US$0.71 in September 2015) has alleviated some pressure on iron ore developers, it has not offset the overall impact of the low iron ore commodity price.

Reasons for the drop in the price of iron ore include: • significant decline in demand from emerging economies, particularly China, for iron ore for steel production • increased iron ore from major and other producers, including Western Australia and Brazil, leading to market oversupply • perceptions that iron ore production will continue to rise above demand as new global projects are commissioned.

8 BUSINESS CASE: SOLUTIONS TO BULK MINERAL EXPORT INFRASTRUCTURE ON SPENCER GULF 3 South Australian Iron Ore Strategy

The iron ore projects proposed in South Australia focus on mining magnetite, a low iron percentage ore (typically 15 to approximately 35 per cent) that must be processed to achieve an iron content product (Fe @ 62% or higher) suitable for export at a price attractive to steel makers.

Consultation with key project proponents during the development of this business case identified that, when compared with deposits elsewhere in Australia and globally, the magnetite deposits in South Australia are perceived as softer, more consistent in grade, containing fewer impurities and possessing shallower cover depths.

The RIT’s examination of five key proposed iron ore projects showed that costs for mining and processing ore were a significant percentage of total project costs, so that any identified operational efficiencies in production of a high- quality product could provide economic advantages.

In 2015, the RIT initiated the development of a South Australian Iron Ore Strategy to promote the development of iron ore magnetite resource projects and product to global steelmaking markets and potential investors. It focuses on magnetite as the major iron ore resource in the state. The strategy – a joint initiative of the iron ore resource industry, government and key research organisations – aims to make South Australia ‘the global source of quality magnetite product for steel making’ for customers in international markets such as China, India, South Korea and Japan.

The strategy will investigate the establishment of a Magnetite Centre of Excellence in South Australia for research and development, that will focus on innovation and improvements in extraction and processing of magnetite for global steelmaking consumption.

The strategy will review South Australia’s position to that of other Australian and international sources of magnetite for steel manufacture, and include: • independent research-based assessments of the comparative attributes of South Australia’s magnetite product and processing efficiencies • market demand trends to determine potential markets for South Australian magnetite product • assessment of how South Australia’s location and other supply-chain factors affect its profile and credentials as a supplier of magnetite product for the steelmaking market.

The strategy is scheduled for completion in 2016.

Arrium Mining’s iron ore storage sheds and ship loader (Photo by Sean Kelly, courtesy of Arrium Mining)

9 4 Spencer Gulf mining projects and port infrastructure proposals

This section outlines the key iron ore projects and related infrastructure developments being considered to support the resources sector in the Spencer Gulf region of South Australia.

4.1 Key iron ore projects and ports proposals

This section summarises those proposed projects that include associated port developments.

Table 2: Proposed iron ore projects and associated port developments

Iron ore Project Iron ore project project ownership Location Description Volume

Far North Region

No operating iron ore mines (at September 2015)

Eyre and Western Region

Central Eyre Iron Road Ltd Mine location is 175 km north Magnetite deposit with JORC 21 Mtpa of concentrate Iron Project of Port Lincoln resource of 4.5 billion tonnes @ 66.5% Fe (CEIP @16% Fe

10 BUSINESS CASE: SOLUTIONS TO BULK MINERAL EXPORT INFRASTRUCTURE ON SPENCER GULF Iron Road’s Central Eyre Iron Project (CEIP) operations, Eyre Peninsula, South Australia (Photo courtesy Iron Road)

Iron ore Project Port proposal Supply chain infrastructure Development status project ownership

Far North Region

No operating iron ore mines (at September 2015)

Eyre and Western Region

Central Eyre Iron Road Ltd Deep water, high-capacity Development of 145 km August 2013 – Declared Iron Project port at Cape Hardy capable standard-gauge heavy rail line a Major Development (CEIP of exporting up to 70 Mtpa to deliver product from mine (Development Act 1993) of iron ore, including 21 Mtpa to port, and to deliver the Feb 2014 – completed a from operations mine modules from port Definitive Feasibility Study Secured 1,100 hectares of land to minesite (DFS) confirming ability to Proposed 1.3 km jetty with deliver high-grade and low- covered conveyer and loaders impurity iron ore concentrate capable of handling vessels up Q3 2015 – finalising to 220,000 tonnes (capesize) Mining Lease Proposal 2 berths with single shiploader, and Environment Impact and MOU signed with a grain Statement for submission handler for shipping of other to SA Government This will commodity begin the formal assessment of potential environmental impacts and provide recommendations to decision- makers under the Mining and Development Acts

Table 2 continued...

11 Table 2 continued

Iron ore Project Iron ore project project ownership Location Description Volume

Eyre and Western Region

Eyre Iron Centrex Fusion Project 35km north Magnetite deposit 894 Mt 5 -10 Mtpa Joint Venture Metals Ltd of Port Lincoln @25% Fe JORC resource Wuhan Iron & Steel (WISCO)

Wilgerup Centrex Deposit in South Gawler Haematite deposit 13.3Mt 2.5 Mtpa Metals Ltd Craton region 83km southwest @ 58% Fe JORC resource of Kimba

Bungalow Centrex Bungalow deposit is 9km Magnetite 338 Mt @ 29% Fe 5 Mtpa and Minbrie Metals Ltd north north-west of Cowell JORC resource Baogang on Eyre Peninsula

Kimba Gap Centrex Kimba Gap, 50 km west Magnetite 487Mt @ 24% Fe Not confirmed. Metals Ltd of Whyalla JORC resource Estimated ~ 5Mtpa

Yorke and Mid North (Braemar) Region

Hawsons Carpentaria Hawsons Iron, 60 km south- Magnetite 1.8 Bt @ 14.9% 10 Mtpa Iron Project Exploration west of Broken Hill (NSW) inferred and indicated Fe Limited JORC resource

Royal Royal/ Razorback and Lodestone, Magnetite 2732Mt @ 19%Fe 25 Mtpa initially – up to Lodestone Braemar about 300 km north east of JORC resource 100 Mtpa Infrastructure Port Pirie

Maldorky Havilah Maldorky, 300 km north east of Magnetite 147Mt @ 30% Fe 2 Mtpa Resources Port Pirie JORC resource

12 BUSINESS CASE: SOLUTIONS TO BULK MINERAL EXPORT INFRASTRUCTURE ON SPENCER GULF Iron ore Project Port proposal Supply chain infrastructure Development status project ownership

Eyre and Western Region

Eyre Iron Centrex Port Spencer received State Joint Venture Metals Ltd Government Development Wuhan Iron & Authorisation (Development Act Steel (WISCO) A multi-user, deep-water port 1993) for Stage 1 in December at Port Spencer, north of 2012, and Commonwealth Port Lincoln Government EPBC approval for Wilgerup Centrex In November 2013 Centrex Wilgerup ore – 110 km by road Stages 1 & 2 in October 2013 Metals Ltd announced completion of Fusion and Bungalow projects 10 Mineral leases for Wilgerup a Prefeasibility Study for a by slurry pipeline granted in 2009 – on hold reduced- cost transhipping In June 2015, Centrex operation using a shorter jetty announced a $17 million Bungalow Centrex (200 metres) write-down of its South and Minbrie Metals Ltd Australian iron ore assets, Baogang citing uncertainty and volatility of iron ore prices

Kimba Gap Centrex Not confirmed Not confirmed Exploration Metals Ltd

Yorke and Mid North (Braemar) Region

Hawsons Carpentaria Redevelopment of Port Pirie 60 km slurry pipeline Mine is in NSW so approvals Iron Project Exploration port to create a transhipment connection from mine to for SA-based components of Limited facility to allow unloading existing ARTC Broken Hill- the project will be considered and stockpiling of iron ore to-Port Pirie track under the Development Act 1993 for transhipment offshore to Dewatered ore then railed Prefeasibility Study (PFS) capesize vessels to Port Pirie undertaken with port operator Flinders Ports to identify the best engineering/route option at Port Pirie. The company also has considered using the Braemar Infrastructure slurry solution

Royal Royal/ Development of a floating 385 km infrastructure access Received Section 26 major Lodestone Braemar storage and offloading facility corridor, including up to four development status in Infrastructure (FPSO) 4 km offshore at slurry pipelines, sealed access September 2013. Myponie Point to receive iron road, support and control In Prefeasibility Study phase ore concentrate produced in facilities at Burra, and a marine the region support base at Wallaroo Ore loaded directly onto capesize vessels

Maldorky Havilah Establish new Port Havilah, Haul ore in trucks to staging Mining Lease Proposal Resources south of Wallaroo, with a area at rail (loop) on the ARTC submitted for the Maldorky transhipment barge operation Crystal Brook to Broken Hill line project loading up to 20 Mtpa Proposed in short-term to use Preparing a response Port Adelaide rotainer terminal; document to comments in longer term, develop rail received during consultation line from Snowtown to Port Havilah on existing rail corridor

13 4.2 Proposed ports and developmental capacity

This section provides an overview of those ports on Spencer Gulf that could be developed to meet the forecast demand from bulk commodity projects in the region.

Table 3: Existing ports with potential for expanded use or capacity

Port Port Status for iron ore export Description operator

Far North Region

Whyalla Port Arrium Pty Ltd Operating port Located on north-west coast of Eyre Peninsula, near Whyalla Consists of two (inner and outer) harbours, both capable of exporting iron ore through transhipment operations or direct bulk loading (Handymax) Linked to narrow gauge and standard gauge rail lines

Port Flinders Advanced Major Project Proposal: SGPL received Located at north-west end of the Spencer Gulf Bonython Ports as lead Major Project status (Development Act 1993) for next to Port Bonython liquids of Spencer the proposed port development in March 2012 Proposal to develop a 3 km jetty into deep Gulf Port SGPL seeking to secure a client that requires the sheltered water (18-20 metres) capable of Links (SGPL) port; no announcement to date catering for capesize vessels (180,000 tonnes) consortium Should a client be secured, construction would About 20 km from the standard gauge railway take about three years at an estimated cost line linking Port Augusta and Whyalla $670 million

Eyre and Western Region

Lucky Bay Sea Transport No active proposals Small shallow harbour on the west side of Corporation Development Authorisation (Development Act Spencer Gulf used for ferry services between 1993) given in 2013 to develop Lucky Bay for Eyre Peninsula and Wallaroo. export of iron ore Currently being expanded to handle grain Designed to accommodate about 1.5 Mtpa and exports transhipment system loading to an off-shore capesize vessel IronClad Mining had proposed to ship ore but is now not proceeding with its project at this time Development of iron ore transhipment system suspended until customer secured

Port Lincoln Flinders Ports No active proposals Port Lincoln, southern tip of Eyre Peninsula In October 2009, Centrex received a Natural deep-water harbour (14.6 metres LAT) Development Authorisation (Development Act 1993) to establish bulk-handling facilities at Port Lincoln to export up to 1.6 Mtpa iron ore from Wilgerup Centrex decided not to proceed; reasons included community concerns about environmental impact

14 BUSINESS CASE: SOLUTIONS TO BULK MINERAL EXPORT INFRASTRUCTURE ON SPENCER GULF Port Port Products Iron ore handling capacity (Mtpa) operator

Far North Region

Whyalla Port Arrium Pty Ltd Used to export manufactured steel products, Up to 18 Mtpa, with an RIT- assessed potential to iron ore and iron ore pellets, and to import expand to 30Mtpa consumables for the steelworks (e.g. coal and Inner Harbour accepts iron ore from the dolomite) Middleback Ranges via a narrow and standard gauge rail line. Outer Harbour has 7 Mtpa capacity, and is serviced by a narrow gauge rail and a slurry pipeline. The Outer Harbour is in ‘care and maintenance’ until the sector recovers.

Port Flinders Export bulk iron ore If developed as proposed, would have an initial Bonython Ports as lead capacity of 50 Mtpa and ultimate capacity of of Spencer 75 Mtpa Gulf Port Links (SGPL) consortium

Eyre and Western Region

Lucky Bay Sea Transport Ferry service for vehicles Nil capacity – up to 1.5 Mtpa if developed using Corporation Development of grain handling a transhipment process

Port Lincoln Flinders Ports Grains and seeds are major exports; fertiliser and Nil capacity – up to 1.6 Mtpa if developed using petroleum products main imports a transhipment process Used to load large bulk grain carriers Can be used for topping up loads from shallower ports in South Australia and Victoria

Table 3 continued...

15 Table 3 continued

Port Port Status for iron ore export Description operator

Yorke and Mid North (Braemar) Region

Port Pirie Flinders Ports No current capacity to export iron ore Port Pirie, 220 km north of Adelaide Proposals to develop a bulk commodity Shallow port with depth of about 7 metres transhipping port from Sea Transport Flinders Ports holds the port operating Corporation and Flinders Ports agreement with Nyrstar the major customer

Port Flinders Ports No active proposals Primarily a container terminal Adelaide IMX resources exported about 1.7 Mtpa from its Depth of 9.3 metres at the main berth – Outer Cairn Hill deposit 55 km south-east of Coober Harbour Pedy before the mine closed No other customer to date

4.3 Other Spencer Gulf iron ore projects

Lincoln Minerals Lincoln Minerals Limited is focused on graphite and iron ore exploration and project development across South Australia’s Eyre Peninsula. Its tenements are near established rail and heavy haulage road networks, shipping ports, and base-load electricity and water supplies. Lincoln has paused mining at its Gum Flat iron project, 20 km west of Port Lincoln, while it works on a graphite project near Tumby Bay.

Gum Flat is expected to produce 250,000 tonnes a year of direct shipping haematite over four or five years, ahead of the development of a 2.5 Mtpa magnetite operation over 10 years. Export port options include Port Lincoln, Port Spencer and Cape Hardy, subject to access.

IronClad IronClad Mining Limited owns the approved Wilcherry Hill project 30 km north of Kimba. The forecast 2 Mtpa project has a JORC Code-compliant1 resource of 24.3Mt at 40.0% Fe. The deposit is adjacent to other deposits that could extend mine life.

Ironclad worked closely with Sea Transport Corporation to establish an export facility for Wilcherry Hill ore at Lucky Bay, however, IronClad is not currently in a position to proceed with the project.

Termite Resources The former Cairn Hill magnetite mine produced up to 1.8 Mtpa of product railed to Port Adelaide and exported using rotainer technology. The operator, Termite Resources, went into administration and ceased mining in late 2014. A Chinese company, Cu-River Mining, bought the mine and surrounding exploration tenements, placing them in care and maintenance. It is investigating whether to re-open the operation when iron ore prices recover.

1 The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (‘the JORC Code’) is a professional code of practice that sets minimum standards for Public Reporting of minerals Exploration Results, Mineral Resources and Ore Reserves.

16 BUSINESS CASE: SOLUTIONS TO BULK MINERAL EXPORT INFRASTRUCTURE ON SPENCER GULF Port Port Products Iron ore handling capacity (Mtpa) operator

Yorke and Mid North (Braemar) Region

Port Pirie Flinders Ports Exports of manufactured products and imports Nil capacity - up to 20 Mtpa if developed using of consumables for Nyrstar a transhipment process Grain exports ended mid 2000s

Port Flinders Ports Primary use of the container terminal is loading/ Up to 1.8 Mtpa via containerised shipping Adelaide unloading international containers, which have – Outer priority over bulk mineral vessels Harbour International container terminal used for exporting bulk minerals between 2010 and 2014; can accommodate post-panamax size vessels

Peculiar Knob pit (Photo courtesy of Arrium Mining)

17 5 Considerations for ports development

The RIT’s examination of iron ore projects and their export requirements, in light of current commodity prices in the cyclical minerals pricing environment, has prompted it to note that, when determining appropriate bulk commodity port infrastructure solutions for Spencer Gulf, the following points should be considered. • The five key iron ore projects, along with others across Australia and internationally, face challenges for investment attraction given the price outlook for iron ore on the global market (about US$55 a tonne at 19 August 2015), iron ore pricing and infrastructure planning and construction timeframes. • Mining and processing costs are the two major components of total operating costs for each proposed project. • Mining and processing to the ‘mine gate’ are the largest components of total capital costs (including processing and supply chain infrastructure), depending on project configuration. • The above points highlight the importance of costs at the ‘mine gate’ relative to the total project costs. While transport infrastructure expenses are also important, a project’s key cost drivers are those within the mine gate, i.e. investment in a mining project providing export demand is the single most critical issue in driving investment in associated infrastructure including a port • Investment from a strategic partner (such as a company operating in the steel industry) may support the cost structure of a project. A partner’s industry knowledge, proprietary technologies and processes, combined with other assistance, can improve efficiencies and reduce costs.

It is unlikely that a new high capacity, bulk commodity port could be developed to meet the RMIP’s recommended timeframes of 2018 for the western Spencer Gulf and 2019 for the eastern Spencer Gulf even if the iron ore price should rise sufficiently enough in the short term to attract investment in one or more of the bulk commodity iron ore projects considered in this Business Case.

Cape Hardy, Iron Road Limited’s proposed multi-user deep water port facility, Eyre Peninsula, South Australia (Photo courtesy Iron Road)

18 BUSINESS CASE: SOLUTIONSCOMMERCIAL TO SOLUTIONS BULK MINERAL TO BULK EXPORT MINERAL INFRASTRUCTURE EXPORT INFRASTRUCTURE ON SPENCER GULF ON SPENCER GULF 6 Shared port infrastructure analysis for key iron ore projects

This section provides a summary of the options for the key proposed projects exporting their product through locations suitable for third-party access and use in the three identified regions.

The analysis reflects the options available at this time and does not preclude other options or opportunities that may emerge.

It is noted that ports with transhipping loading facilities can usually be developed faster than other ports. On the other hand, transhipping operational costs and times to load vessels for export are greater than for high-volume, direct loading port facilities that can accommodate large Capesize vessels.

6.1 Far North Region

6.1.1 Existing Whyalla port – Arrium Limited The Whyalla port has been exporting iron ore from the Arrium mining operations at a proven rate of approximately 13 Mtpa, using transhipment to load vessels at the outer and inner harbour facilities. Due to the reduction in iron ore prices it is now exporting iron ore at a significantly reduced rate.

The port also has: • a products handling berth for exporting steel products that is about 25 per cent used • a commodities berth used to import coal, limestone and dolomite and other inputs for Arrium’s steelmaking and blast furnace operations.

In February 2015, Arrium announced a reduced iron ore export volume (estimated at 9-10 Mtpa) exclusively through the more modern northern inner harbour facility. This could create opportunities for other proposed iron ore projects to access the port and its associated rail infrastructure.

The RIT’s assessment indicates that the port could be further developed to an estimated capacity of 30 Mtpa.

The following key projects could capitalise on capacity within the Whyalla port infrastructure: • Iron Road Limited Central Eyre Iron Project • Centrex Fusion (Eyre Iron Joint Venture) • Centrex Kimba Gap • Hawsons (western NSW).

The proposed Braemar/Royal project was not considered for the Whyalla port as its export volume, when combined with Arrium’s, would exceed the port’s estimated capacity, even with further development.

19 Roxby Downs

Map 2: Potential users of the Whyalla port

Broken Hill Ceduna Cockburn

Port Augusta Maldorky Hawsons (NSW) Havilah Iron Knob Lodestone Carpentaira Braemar

Iron Baron Peterborough NEW SOUTH WALES NEW Centrex Port Bonython Razorback Iron Road Kimba Arrium Whyalla Braemar Central Eyre Gap Middleback Iron Project Ranges Port Pirie Iron Duke Centrex Crystal Brook Bungalow Lucky Bay Wilgerup Myponie Point Centrex Snowtown Wallaroo Port Havilah Kadina Existing Port Eyre Iron Magnetite Cape Hardy Renmark Proposed Port Project Port Spencer Proposed Upgrade Centrex Fusion Ardrossan Iron Ore Mine VICTORIA

Town Port Lincoln Port Adelaide

Rail option Klein Point ADELAIDE Port Giles Slurry pipeline option Map is illustrative only and not drawn to scale. Australian Main Freight Rail Not all developments shown on map

Kingscote Victor Harbor KANGAROO Table 4: Options for key projects to share the WhyallaISLAND port Penneshaw

WHYALLA PORT

Bordertown Project Description Additional Port change Comment transport path

Iron Road Maximises Whyalla port capacity 61 km of Would require Kingstonincrease SE in Likely to increase combined with Arrium exports new rail and port capacity project costs and Coonawarra Unable to accommodate access with significantly significantly increase a third project upgraded rail project construction timeframe 0 50 100 Mount GambierPort configuration has lower shipping efficiencies km (smaller available vessel size)

Eyre Iron Long slurry pipeline to connect to 250 km Would require increase in Likely to increase Joint Venture Whyalla port New slurry line port capacity project costs

Kimba Gap Base case – slurry line to Whyalla to Base case Base case Base Case export from Whyalla port

Hawsons Via Broken Hill rail line 181 km Use existing port facilities/ May provide project Potential options sharing existing Upgraded rail landside infrastructure cost benefits available port capacity capacity

More detailed analysis of any potential use by the Hawsons project of the Whyalla port will be required as the project develops.

20 BUSINESS CASE: SOLUTIONS TO BULK MINERAL EXPORT INFRASTRUCTURE ON SPENCER GULF 6.1.2 Proposed Port Bonython port – Flinders Ports Consortium The Port Bonython Bulk Export Port proposal in the northern Spencer Gulf area has been in development since 2008 and is awaiting a development assessment decision on its Environmental Impact Statement.

If all environmental approvals are secured, development of the port would still be subject to the consortium securing one or more users with sufficient demand to secure investment.

Construction time is estimated at three years at a cost of $663 million for a capacity of 50 Mtpa, with options to expand to an estimated 75 Mtpa.

Key iron ore projects that could access the proposed Port Bonython port are: • Iron Road Limited Central Eyre Iron Project • Centrex Kimba Gap • Braemar/Royal. Roxby Downs The proposed Centrex Fusion and Carpentaria projects were not considered, given the additional distance over and above the necessary supply chain infrastructure to reach Port Bonython beyond Whyalla and the potential increased cost of accessing it.

Map 3: Potential users of Port Bonython

Broken Hill Ceduna Cockburn

Port Augusta Maldorky Hawsons (NSW) Havilah Iron Knob Lodestone Carpentaira Braemar

Iron Baron Peterborough NEW SOUTH WALES NEW Centrex Port Bonython Razorback Iron Road Kimba Arrium Whyalla Braemar Central Eyre Gap Middleback Iron Project Ranges Port Pirie Iron Duke Centrex Crystal Brook Bungalow Lucky Bay Wilgerup Myponie Point Centrex Snowtown Wallaroo Port Havilah Kadina Eyre Iron Magnetite Cape Hardy Renmark Existing Port Project Port Spencer Proposed Port Centrex Fusion Ardrossan Proposed Upgrade VICTORIA

Iron Ore Mine Port Lincoln Port Adelaide Town Klein Point ADELAIDE Port Giles Rail option Map is illustrative only and not drawn to scale. Australian Main Freight Rail Not all developments shown on map

Kingscote Victor Harbor KANGAROO Table 5: Options for iron ore projects to access PortISLAND Bonython Penneshaw

PORT BONYTHON

Bordertown Scenario Description Additional Port change Comment Option transport path

Iron Road Needs can be met within port 80 km of Using port availableKingston SE Likely to increase Project capacity new rail and capacity project costs and Coonawarra Via Kimba-Iron Knob rail line significant significantly increase requirement project construction Upgrade to existing Eyre Peninsula for upgraded timeframe Rail System – new rail to Port narrow gauge Mount Gambier Bonython0 50 100 rail km Table 5 continued...

21 Table 5 continued

PORT BONYTHON

Scenario Description Additional Port change Comment option transport path

Kimba Gap Rail to Port Bonython via Iron Baron 50 km Using port available Likely to increase project Intermodal at Iron Baron Rail line to New rail capacity costs over base case export from Port Bonython port with new extended rail line

Braemar Possible via Broken Hill line – for 390 km Using port available Likely to increase Lodestone 25 Mtpa volume, using rail to Port Upgraded rail capacity project costs Bonython New rail to Port Bonython

More detailed analysis of these options would be required when the projects were at a more advanced stage of development. 6.2 Eyre and Western Region

6.2.1 Cape Hardy port – Iron Road The proposed Cape Hardy port for the Iron Road Limited Central Eyre Iron Project would be a direct loading, high- capacity port with enough land for the later development of capacity to allow third-party iron ore producers and producers of other commodities, including grain, to export from it. The proposed landside area for the port provides options for the development of third party use of the facility.

The rail configuration proposed for the project provides a linkage for export of grain from the Eyre Peninsula. Because the site is only 12 km from the proposed Centrex Port Spencer (lower-volume transhipment) port, an option would be to export Centrex’s forecast 5 Mtpa iron ore product from Cape Hardy in its initial format of 70 Mtpa capacity. (See Map 4) Roxby Downs The proposed location – at the lower end of western Spencer Gulf – may be uneconomic for the export of iron ore from proposed mining projects in the Upper Spencer Gulf (Centrex Kimba Gap), the Far North, and the Yorke and Mid North (Braemar) regions on the eastern side of Spencer Gulf.

Map 4: Potential users of Cape Hardy port

Broken Hill Ceduna Cockburn

Port Augusta Maldorky Hawsons (NSW) Havilah Iron Knob Lodestone Carpentaira Braemar

Iron Baron Peterborough NEW SOUTH WALES NEW Centrex Port Bonython Razorback Iron Road Kimba Arrium Whyalla Braemar Central Eyre Gap Middleback Iron Project Ranges Port Pirie Iron Duke Centrex Crystal Brook Bungalow Lucky Bay Wilgerup Myponie Point Centrex Snowtown Wallaroo Port Havilah Kadina Existing Port Eyre Iron Magnetite Cape Hardy Renmark Proposed Port Project Port Spencer Proposed Upgrade Centrex Fusion Ardrossan Iron Ore Mine VICTORIA

Town Port Lincoln Port Adelaide

Rail option Klein Point ADELAIDE Port Giles Slurry pipeline option Map is illustrative only and not drawn to scale. Australian Main Freight Rail Not all developments shown on map

Kingscote Victor Harbor KANGAROO 22 BUSINESS CASE: SOLUTIONS TO BULK MINERALISLAND EXPORT INFRASTRUCTUREPenneshaw ON SPENCER GULF

Bordertown

Kingston SE

Coonawarra

0 50 100 Mount Gambier

km Table 6: Options for iron ore projects to access Cape Hardy port

CAPE HARDY

Project Description Additional Port change Comment transport path

Eyre Iron Slurry line to Cape Hardy port 12 km Existing port capacity May provide project Joint Venture Option to access Cape Hardy port New slurry line Requires new port loading cost benefits Centrex facilities extension infrastructure Fusion

More detailed analysis of the Centrex Fusion option would be required when the project was at a more advanced stage of development.

6.2.2 Port Spencer – Centrex Centrex gained development approval for its Port Spencer direct loading port proposal in December 2012, but did not proceed with construction.

In December 2014, the company received a two-year extension to its development approval. It is currently revising the designs for Port Spencer to reduce capital costs while allowing for potential future demand.

In June 2015, Centrex announced an impairment of its iron ore interests and reported that it would concentrate on its potash interests. As a result, it may not develop iron ore mines and associated infrastructure, including the proposed Port Spencer port, in the short to medium term.

Any revision to the Port Spencer port proposal is likely to cater for a mid-range volume of iron ore exports but the facilities may not be suitable to handle additional export large volumes from the proposed Iron Road project.

6.2.3 Lucky Bay – Sea Transport Corporation The existing Lucky Bay ferry harbour is a small, shallow harbour on the western side of Spencer Gulf, between Port Lincoln and Whyalla. Sea Transport Corporation (STC) is expanding the harbour to provide a common-user export facility. The current focus is on developing grain export capacity at the facility.

The initial plans were to export 1.5 Mtpa of iron ore by transhipment. While this option could be developed, subject to demand from nearby iron ore projects such as Centrex Wilgerup and Fusion, there are currently no customers looking to use the facility for export.

These issues suggest that Lucky Bay is unlikely to be developed as a high-volume, multi-user bulk mineral export port, but could be developed as a small-volume port.

6.2.4 Port Lincoln Port – Flinders Ports Port Lincoln port is used for bulk grain shipment and to support the local fishing fleet and aquaculture industry.

Centrex sought to upgrade the port infrastructure to accommodate up to 1.6 Mtpa for the export of iron ore from its proposed Wilgerup iron ore (haematite) mine. However, it did not proceed with the development and associated port upgrade. Iron Road Limited’s assessment found it was not possible to develop Port Lincoln to meet its proposed large 21.5 Mtpa export volume.

Any development of the Port Lincoln facility must consider: • the rail corridor and its constrained land area, including road crossings and impacts on adjacent land use • the difficulty of moving product through Port Lincoln’s urban area, both from an efficiency perspective and also because of the potential impact on community amenity • issues related to integrating large volumes of mineral exports with the wharf’s existing grain and seafood industry uses

23 • possible limited overall shipping export volume capacity (although the existing port water depth can cater for direct loading, larger, Panamax vessels) • the need for dredging and infrastructure upgrades to enable direct loading of Capesize vessels.

In summary, Port Lincoln is unlikely to be able to be developed as a high-volume, multi-user bulk mineral export port, but could be developed as a lower-volume port.

6.3 Yorke and Mid North (Braemar) Region

6.3.1 Myponie Point facility The Myponie Point proposal is for a floating processing, storage and offloading facility that would be located about 4 km off the coast, north-west of Point Riley and north of Wallaroo, on the eastern side of Spencer Gulf. The facility would enable cape size vessels of more than 150,000 tonnes to receive iron ore product for export.

The proposed facility could be expanded in 25 Mtpa stages, up to an estimated 100 Mtpa capacity. It would receive iron ore slurry from submarine pipelines and dewater it for direct loading to vessels or for temporary storage on a permanently moored, Capesize vessel.

There is no proposed capacity for imports, but suitable commercial proposals could lead to a different development catering for the import and export of iron ore and other commodities.

The following key iron ore projects could access the proposed Myponie Point facility infrastructure: • Hawsons (western NSW) • Braemar/Royal. Roxby Downs • Havilah.

In preparing this business case the RIT has assumed that it would not be economically viable for projects from the Eyre Peninsula region to use the Myponie Point facility because of the significant distance from the mine gate to the port.

Map 5: Potential users of Myponie Point

Broken Hill Ceduna Cockburn

Port Augusta Maldorky Hawsons (NSW) Havilah Iron Knob Lodestone Carpentaira Braemar

Iron Baron Peterborough NEW SOUTH WALES NEW Centrex Port Bonython Razorback Iron Road Kimba Arrium Whyalla Braemar Central Eyre Gap Middleback Iron Project Ranges Port Pirie Iron Duke Centrex Crystal Brook Bungalow Lucky Bay Wilgerup Myponie Point Centrex Snowtown Wallaroo Port Havilah Kadina Existing Port Eyre Iron Magnetite Cape Hardy Renmark Proposed Port Project Port Spencer Proposed Upgrade Centrex Fusion Ardrossan Iron Ore Mine VICTORIA

Town Port Lincoln Port Adelaide

Slurry pipeline option Klein Point ADELAIDE Port Giles Slurry pipeline Map is illustrative only and not drawn to scale. Australian Main Freight Rail Not all developments shown on map

Kingscote Victor Harbor KANGAROO ISLAND Penneshaw

Bordertown

24 BUSINESS CASE: SOLUTIONS TO BULK MINERAL EXPORT INFRASTRUCTURE ON SPENCER GULF

Kingston SE

Coonawarra

0 50 100 Mount Gambier

km Table 7: Options for iron ore projects to access Myponie Point

MYPONIE POINT

Scenario Description Additional transport Port change Comment option path

Hawsons Via Broken Hill rail line 30 km Can be accommodated in Detailed analysis required Entry to Braemar Slurry line from Snowtown an expanded stage of the to assess project benefits infrastructure capacity infrastructure slurry line at Slurry entry point Snowtown intake point Rail/slurry intermodal

Havilah Could use marginal Use of infrastructure May be able to use May provide project capacity capacity marginal capacity due to cost benefits low volume

More detailed analysis of these options would be required when the projects are in development.

6.3.2 Port Pirie port The Port Pirie port has no existing capacity for the export bulk iron ore. However, two independent studies have examined the feasibility of developing its capacity to export bulk iron ore. One study has assessed the option of establishing a new facility on Solomontown Island, on the opposite side of the Port Pirie River. It estimates a capital cost of between $256 million and $287 million for a capacity of 10 Mtpa, using transhipment to load vessels. An option provided by Carpentaria Limited for its proposed Hawsons project considered using existing port facilities in addition to building new rail sidings and a rail unloader on the edge of town, and establishing a covered conveyor system to the existing wharves. The estimated cost, at 10 Mtpa capacity, was $230 million +/- 30 per cent. Assessment by Carpentaria found that the port could be upgraded to an estimated capacity of 20 Mtpa, using transhipment. The following key iron ore projects could access the proposed Port Pirie port infrastructure: • Hawsons (western NSW) Roxby Downs • Havilah. The Braemar/Royal project was excluded as an option because its proposed export volume exceeds the port’s suggested maximum capacity, when developed.

Map 6: Potential users of Port Pirie port

Broken Hill Ceduna Cockburn

Port Augusta Maldorky Hawsons (NSW) Havilah Iron Knob Lodestone Carpentaira Braemar

Iron Baron Peterborough NEW SOUTH WALES NEW Centrex Port Bonython Razorback Iron Road Kimba Arrium Whyalla Braemar Central Eyre Gap Middleback Iron Project Ranges Port Pirie Iron Duke Centrex Crystal Brook Bungalow Lucky Bay Wilgerup Myponie Point Centrex Snowtown Wallaroo Port Havilah Kadina Eyre Iron Magnetite Cape Hardy Renmark Existing Port Project Port Spencer Proposed Port Centrex Fusion Ardrossan Proposed Upgrade VICTORIA

Iron Ore Mine Port Lincoln Port Adelaide Town Klein Point ADELAIDE Port Giles Rail option Map is illustrative only and not drawn to scale. Australian Main Freight Rail Not all developments shown on map

Kingscote Victor Harbor KANGAROO 25 ISLAND Penneshaw

Bordertown

Kingston SE

Coonawarra

0 50 100 Mount Gambier

km Table 8: Options for iron ore projects to access Port Pirie port

PORT PIRIE

Scenario Description Additional transport Port change Comment Option path

Hawsons Via Broken Hill rail line Nil New port infrastructure Base case Base case export from Port Upgraded existing rail Pirie port network

Havilah Alternative option to utilise Use of existing rail network Use of port developed by May provide project marginal capacity other proponent cost benefits

More detailed analysis of these options would be required when the projects were at a more advanced stage of development.

6.3.3 Port Adelaide – Outer Harbor Bulk export rotainer loading capacity of up to 1.8 Mtpa remains available at Port Adelaide for a company seeking a short-term export path for bulk iron ore.

The loading rate of 1450 tonnes per hour (tph) using rotainers is slower than traditional bulk loading methods (usually between 2,000 tph and 5,000 tph and up to 10,000 tph proposed for the Cape Hardy port) and the rail-to-port transport costs from the iron ore mines are high when compared with closer ports. In addition, the rail links pass through northern Adelaide urban areas and there may be local traffic and community impacts.

High-level modelling undertaken by the Department of Planning, Transport and Infrastructure (DPTI) reveals that the Outer Harbor container terminal in its current form has limited capacity to accommodate the development of facilities for high volumes of bulk export commodities.

However, Port Adelaide may be a viable short or medium-term option for low-volume and/or higher-value bulk mineral exports – such as Havilah’s proposed 2 Mtpa production – when a mine begins operating.

Flinders Ports rotainer at Port Adelaide

26 BUSINESS CASE: SOLUTIONSCOMMERCIAL TO SOLUTIONS BULK MINERAL TO BULK EXPORT MINERAL INFRASTRUCTURE EXPORT INFRASTRUCTURE ON SPENCER GULF ON SPENCER GULF 7 Strategic fit – economic evaluation

7.1 Economic impacts

An assessment was undertaken of the economic impacts of developing the proposed key iron ore projects and options for access to alternative infrastructure and ports. Flinders Ports currently controls and operates most ports in South Australia.

In assessing the economic impacts it was recognised that development of mining projects was fundamental in providing demand for the investment in associated infrastructure. Investment would be most attracted to low capital cost, low risk flexible proposals, with options for multi commodity use (including grain).

7.2 Existing ports’ economic contribution

Port operations in 2012-13 (Sourced from the RMIP) • Flinders Ports employed 425 people directly in port operations • Ports included in the assessment of economic contribution include Port Adelaide, Port Lincoln, Port Pirie, Thevenard, Wallaroo and Port Giles • Operations at these ports contributed about $76 million to Gross State Product (GSP) and supported 660 jobs (FTEs) across South Australia after production-induced impacts were considered.

Port operations and exports in 2012-13 (Sourced from the RMIP) • In 2012-13, the ports listed above handled approximately $9.8 billion in exports • The production of these exports was estimated to support 26,761 direct jobs (FTEs). • When added to general port operations, exports that flowed through the ports were estimated to contribute about $7.29 billion to GSP and support about 51,215 FTEs.

In addition to the above in 2012-13, Whyalla port exported 8.2 million tonnes of iron ore product, generating $340 million of income for Arrium Limited.

7.3 Impacts of infrastructure supply chain options

Nine individual project development and shared infrastructure supply chain options were examined at a high level to highlight the potential economic impacts of mining and infrastructure developments in South Australia. More detailed, project-specific data, obtained when projects are at more advanced stages in their development cycles, would refine this analysis.

The following projects are likely to generate the highest economic impact for South Australia during the construction of mine, port and associated supply chain infrastructure.

Proposed greenfields ports • Iron Road Limited exporting iron ore product from the Cape Hardy port • Iron Road and Centrex Fusion exporting iron ore product from the Cape Hardy port • Braemar and Carpentaria Limited exporting iron ore product from Myponie Point facility.

Brownfields ports • Carpentaria and Centrex Kimba Gap exporting iron ore product through an expanded Whyalla port.

27 The following iron ore export proposals are likely to generate the highest economic impacts for South Australia during the operations phase for both the mine and associated infrastructure.

Proposed greenfields ports • Iron Road Limited exporting from the Cape Hardy port • Iron Road & Centrex Fusion projects exporting from the Cape Hardy port • Braemar & Carpentaria projects exporting through the Myponie Point facility.

Brownfields ports • Carpentaria and Centrex Kimba Gap projects exporting iron ore product from an expanded Whyalla port • Carpentaria project exporting through the Port Pirie port.

In prioritising proposals according to economic impact relating to their construction and operational phases, the South Australian Government could consider: • the Cape Hardy port for use by Iron Road and Centrex Fusion • Myponie Point facility for use by Braemar and Carpentaria • expanding the Whyalla port for use by the Carpentaria and Centrex Kimba Gap projects, as well as any further development of Arrium’s own magnetite and haematite resources.

7.4 Social and environmental impacts

7.4.1 Environmental impacts The Regional Mining Infrastructure Plan acknowledged that mining activities and the supply chain infrastructure used to support them can significantly affect the surrounding environment.

The environmental impacts of mining-related development are assessed on a case-by-case basis during the development assessment and public consultation processes.

Supporting the analysis of major projects is the Spencer Gulf Ecosystem & Development Initiative (SGEDI), a program led by a group of industry, government, community and University of Adelaide representatives and researchers. The Initiative provides research, information, tools and networks to inform project proponents’ feasibility studies and government’s development assessment processes. Its current research includes exploring the impact of increased shipping in Spencer Gulf.

7.4.2 Community impacts Mining activities and the supply chain infrastructure used to support them can have significant impacts on the communities in which they exist or operate. Some impacts may be positive, such as the introduction of new or expanded transport infrastructure; others may be negative, such as increased freight traffic through towns or farming areas.

The Department of State Development and Department of Planning, Transport and Infrastructure are working with local government and regional development authorities to ensure effective engagement programs capture, and if necessary respond to, community concerns.

Development assessment processes also seek community input and require potential ramifications to be identified and addressed.

28 BUSINESS CASE: SOLUTIONS TO BULK MINERAL EXPORT INFRASTRUCTURE ON SPENCER GULF 8 Multi-user access frameworks

For projects to aggregate and share the use of supply chain infrastructure, including port facilities, commercially sustainable third-party access frameworks must be in place.

8.1 Government objectives for access to ports and associated infrastructure

An effective and efficient framework for third-party access to infrastructure contributes to economic development through: • building South Australia’s competitive advantage, particularly in mining and mineral resources, but also in other economic sectors • facilitating seamless supply chains for the export of bulk commodities and products to markets • fostering and supporting regional collaboration in developing and using new and existing infrastructure.

Clear and consistent regulation enhances the capacity of third-party access frameworks to help users manage and capitalise on their access.

Best-practice access frameworks will: • support collaborative infrastructure solutions for the resources sector and other supply chains • facilitate any necessary access to multiple industry sectors and commodities • support commercial negotiations • be clear, flexible and able to respond to and settle disputes quickly and easily • minimise compliance costs • consider and manage risk • not deter supply chain infrastructure investment • be sustainable and offer opportunities for the renewal of commercial arrangements.

8.2 Greenfields port development proposals

The access provisions of the Maritime Services (Access) Act 2000 (MSA Act) may be applied to a new greenfields port development. The Essential Services Commission of South Australia (ESCOSA) oversees key provisions relating to the declaration of a new port facility under the MSA Act.

For ‘essential maritime services’, such as access to channels and berths, pricing regulations would apply. In recent times, ESCOSA has enabled port operators to set their own prices for such services.

For ‘regulated services’, such as pilotage and access to infrastructure for loading and unloading vessels, the MSA Act establishes a third-party access framework. Access seekers and infrastructure providers engage in commercial negotiations. Should negotiations fail, ESCOSA conciliates between the parties before any formal arbitration.

The MSA Act may be applied only after a port is operating or ready to operate, not during construction. The Port Operating Agreement (POA) will define access provisions for the use of a port, based on negotiations between the government and the mining proponent, before that port begins operating.

29 Depending on the scale of the port development, it is conceivable that Part IIIA of the Competition and Consumer Act 2010 (Commonwealth) (the CCC Act) may apply to third-party access to supply chain infrastructure with respect to: • access undertakings – where infrastructure service providers voluntarily submit enforceable access undertakings to the federal Australian Competition and Consumer Commission (ACCC), which establishes the terms and conditions of third-party access • effective access regimes – which recognise certified state-based access legislation and regulation (such as the MSA Act) and holds that where such frameworks apply, the CCC Act will not apply • declaration and negotiation or arbitration – where a party can apply to the National Competition Council (NCC) to have access to infrastructure regulated. The NCC then makes a recommendation to the relevant Minister. This application requires that the infrastructure services to be declared are of ‘national significance’ and that access would ‘promote a material increase in competition in (an upstream or downstream) market’. Following declaration, parties attempt to negotiate a commercial outcome. Failing this, the ACCC arbitrates and makes a binding access determination.

The preferred approach for new greenfields port developments would be to declare new port developments under the state-based regime established under the MSA Act.

This is because: • uncertainty over whether any port infrastructure would meet the threshold tests under the CCC Act • declaration under the CCC Act can be subject to lengthy legal challenges, as was the case with rail third-party access in the Pilbara region in Western Australia • desirable consistency with the regulation of other port operations in South Australia covered by the MSA Act.

8.3 Brownfields port development proposals

The major brownfields port proposals fall into two sub groups: Whyalla port, which is owned by Arrium Limited and operates under specific legislative arrangements; and other ports, including Port Pirie, Port Lincoln and Port Adelaide, which are owned and operated by Flinders Ports.

Whyalla port The existing Whyalla port is unique in South Australia, given its private ownership and the legislation that governs its operation. • The Broken Hill Proprietary Company Limited’s Hummock Hill to Iron Knob Tramways and Jetties Act 1900 (SA) provides the owner with a perpetual lease that gives it exclusive rights to port use and access. • The Hummock Hill to Iron Knob Tramway Extension Act 1927 (SA). • The Broken Hill Proprietary Company Indenture Act 1937 (SA) (the first indenture) permits the owner to build, occupy and maintain infrastructure. It also protects those rights, and states that the company shall ‘not be in any way impaired, disturbed or prejudicially affected’. It further requires that government take necessary steps to ensure the rights are protected. • The Whyalla Steel Works Act 1958 (SA) (the second indenture) reinforces rights under the first indenture.

As a result, third-party access to this port can only occur if Arrium and the third party reach agreement on commercial terms.

Other brownfields ports With the possible exception of the existing liquids export facility at Port Bonython, there is nothing to prevent the implementation of third-party access frameworks under MSA Act. This would occur through declaration and proclamation under the Act.

30 BUSINESS CASE: SOLUTIONS TO BULK MINERAL EXPORT INFRASTRUCTURE ON SPENCER GULF 9 Government support options

In general, government would support fully private financing and funding of projects. However, in considering whether it can, or should, support the development of infrastructure to, in turn, support on a case by case basis individual resource projects – government must consider the commerciality of each project proposal. It must also take into account the short and longer-term economic, social and environmental impacts of the project on communities, regions and the state.

9.1 Whyalla port

The port is considered a strategic state infrastructure asset and has the potential to support demand in the Upper Spencer Gulf, the Eyre Peninsula and Far North regions, and possibly provide export options for the Yorke and Mid North (Braemar) regions.

There are two options for the Whyalla port and Arrium’s operations there: • in the short to medium term, the port could facilitate third-party exports of iron ore sourced from mining operations • in the longer term, it could handle other import and export bulk commodities and products.

9.2 Greenfields port proposals

The RIT has identified options for financing and funding greenfields port developments for iron ore exports in the Spencer Gulf, and options for government support2 by: • investigating investor interest in port infrastructure options • reviewing international examples of, and highlighting issues for government involvement in, greenfields bulk export port developments • identifying options for government involvement in the development of bulk export ports under different scenarios.

Note that these options could also apply to the further development of brownfields ports.

9.2.1 Key issues In summary, the government could decide to accelerate a greenfields port development, provided the underlying commercial viability of the proposed mining project was sufficient to support that development.

The market research indicates that: • various funding and financing options address project risk and attract investment • the state’s role in a funding/financing solution to achieve an investment outcome would depend on factors including its assessment of the commerciality of projects and global economic conditions • investor interest will depend on the quality of associated mining proponents’ business cases and the ability to obtain an agreement relating to a port’s use and development • the government could adopt a solution or solutions using a strategic and staged approach based on sound economic forecasts.

9.2.2 Available support options

9.2.2.1 Non-financial options Several non-financial support options are available to the government to develop projects and therefore help attract investment in mining and resources projects and support infrastructure. They include:

2 Port Funding & Financing Options Options for the Resources Infrastructure Taskforce – PwC Report rit.statedevelopment.sa.gov.au

31 • managing and ensuring timely approval processes through legislative and regulatory frameworks • coordinating project proponents and aggregation of export demand in developing shared use of infrastructure supply chains • investing in high quality business case analyses to support sound, open and transparent decision making • promoting bipartisan support for existing and potential projects through a ‘social licence to operate’ • providing certainty around policy, such as that relating to the development of infrastructure corridors.

The government’s review of South Australia’s planning system will provide opportunities to coordinate the planning and development of infrastructure and land zoning, as well as the assessment and development of ports. (Reforms are expected to include legislation to replace the Development Act 1993 and the Urban Renewal Act 1995.) The government also may consider incorporating features designed to increase investor confidence in future infrastructure developments.

9.2.2.2 Financial options Financial options to support port infrastructure delivery range from fully privately-funded models to fully state-funded models. Shared funding models offer government opportunities to use state investment to support the delivery of a desired outcome. They include: • the ‘state as landlord’ model, which allows the state to have a role in developing elements of core port infrastructure (such as wharfage) while the private sector funds and develops landside infrastructure (such as rail and storage) • the ‘co-investment’ model, which allows the state to invest in the project as a debt (such as through concessional loans) or equity investor, with the potential for earnings from later profits • the ‘revenue guarantees’ model, which guarantees a portion of project revenues by value, volume, or return.

In choosing to agree to a shared funding model, government is likely to consider factors such as relevant business and cost-benefit analyses, the existing and forecast resources commodity cycles, perceived investor interest and broader policy objectives.

Figure 2 shows funding and financing scenarios that could support port infrastructure development in South Australia.

Figure 2: Funding options Assessment of viability

Traditional delivery State funding solution will not be (e.g. public infrastructure) considered – preference for a market-led Fully state funded solution

Availability style PPP

A debt or sub-debt investment (e.g. concessional loan) could bridge a Co-investment Debt and sub-debt modest or temporary feasibility gap

Equity There is an investor aversion to co-investment in equity, unless the state is a passive investor

Shared funding model State as landlord A shared funding approach is critical to Fixed address investor uncertainty. • State-as-landlord can reduce key State subsidy/revenue Volume-based development and greenfields guarantee infrastructure risks • State guarantees will address funding risk and provide critical support to Return-based accelerate port development

Figure 2 continued...

32 BUSINESS CASE: SOLUTIONS TO BULK MINERAL EXPORT INFRASTRUCTURE ON SPENCER GULF Figure 2 continued

Contracted Single user/trade

Fully private funded

Market-based Diversified facility

Depending on the specific port infrastructure project, the mining projects aligned to it and the assessments of those projects during the development cycle, the government may choose to adopt one of these options to reduce investor risk and facilitate investment.

9.3 Criteria for government support

The RIT recommends that threshold criteria be applied to resources projects to trigger assessment and additional government support solutions beyond case management and would form part of a detailed, staged process.

That criteria be based on: • the commercial viability for the life of a mine • confirmed project funding with a strategic partner • customer off-take agreements for mine products • the preferred port location for the export of product • the timing for development (including feasibility, approvals and construction) • aggregation options for projects.

For the purposes of this report, the final point, ‘aggregation options for projects’, refers to the assessment of options to share supply chain infrastructure use with other projects in the same or other industry sectors.

Government would monitor the progress of resource projects, according to these criteria, to consider a level of graduated response for any support beyond case management.

This information would help government assess, prioritise and potentially facilitate regional supply chain infrastructure projects to support resource projects and the state’s economic development.

33 The business case recognises the significant economic benefits that emerge for local communities when mines and associated infrastructure are built and operate in a particular region.

Cape Hardy, Iron Road Limited’s proposed multi-user deep water port facility, Eyre Peninsula, South Australia (Photo courtesy Iron Road)

34 BUSINESS CASE: SOLUTIONSCOMMERCIAL TO SOLUTIONS BULK MINERAL TO BULK EXPORT MINERAL INFRASTRUCTURE EXPORT INFRASTRUCTURE ON SPENCER GULF ON SPENCER GULF 10 Preferred bulk mineral export infrastructure solutions

10.1 Port priority assessment matrix

This business case identifies the brownfields and greenfields port proposals with the best potential for shared use by proposed iron ore projects on Spencer Gulf.

Map 7 and Table 9 below provide an overview of the RIT’s analysis. The port options matrix has been developed according to the following criteria:

Project commerciality assessment • Capacity of the port – maximum throughput volumes • How product will move from shore to ship (which affects operational efficiencies and costs) • The number of committed and potential iron ore customers of a port • Costs to transport ore to port (distance between mining operation and port) • How soon a port could be built.

Strategic fit with government and industry priorities • Alignment with the RMIP recommendation for consolidating the number of ports and encouraging shared use of infrastructure supply chains • Use of existing supply chain infrastructure and impacts on projects • A port’s capacity to handle a range of commodities (for economic efficiency) Roxby Downs • Regional economic impact • Import and export capabilities.

Map 7: Port options

FAR NORTH REGION

Ceduna NEW SOUTH WALES NEW Port Augusta

Whyalla Port Bonython YORKE & Port Pirie MID NORTH EYRE & WESTERN Lucky Bay REGION REGION Myponie Point Wallaroo Cape Hardy Port Havilah Renmark Port Spencer

Murray VICTORIA Port Lincoln Port Adelaide Basin Proposed Port Existing Port ADELAIDE Highways Map is illustrative only and not drawn to scale. Rail Not all developments shown on map

Kingscote Victor Harbor KANGAROO ISLAND Penneshaw 35

Bordertown

Kingston SE

Coonawarra

0 50 100 Mount Gambier

km Table 9: Port priority assessment matrix – analysis of port options

Criteria* Shore to ship Commerciality

Capacity Iron ore Cost to transport ore Construction (planned export to port lead time max committed/ Port operator throughput) potential Eyre Far N Brae Port or proponent users

Far North Region

Whyalla Arrium Transhipping ✓✓✓ 1C/3P ✓✓ ✓ ✓ ✓✓✓ Bulk loading (Handymax)

Port Flinders Ports Bulk loading ✓✓✓✓ 0C/3P ✓✓ ✓ ✓ ✓✓ Bonython

Eyre and Western Region

Cape Hardy Iron Road Bulk loading ✓✓✓✓ 1C/1P ✓✓ ✗ ✗ ✓

Port Spencer Centrex Transhipping ✓✓ 1C/0P ✓✓ ✗ ✗ ✓✓

Lucky Bay Sea Transport Transhipping ✓ 0C/1P ✓ ✗ ✗ ✓✓✓

Port Lincoln Flinders Ports Transhipping ✓ 0C/1P ✓✓ ✗ ✗ ✓✓✓

Yorke and Mid North/Braemar Region

Myponie Braemar/Royal Bulk loading - ✓✓✓✓ 1C/2P ✗ ✓ ✓✓ ✓✓ Point^ Slurry

Port Pirie Flinders Ports Transhipping ✓✓ 0C/2P ✗ ✓ ✓✓ ✓✓

Port Havilah Havilah Transhipping ✓✓ 1C/2P ✗ ✓ ✓✓ ✓ Resources

Port Flinders Ports Containerised ✓ 0C/2P ✗ ✓ ✓ ✓✓✓ Adelaide (rotainer) – Outer Harbour

* Descriptions ^ Myponie Point is a floating offshore processing, storage and offloading facility, not a true port facility. Slurry is dewatered prior to loading.

Shore to ship Transhipping to deep water Bulk loading to deepwater Containerised - rotainer • Moderate capital expenditure • High capital expenditure • Mod capital expenditure • High operating expenditure • Low operating expenditure • High operating expenditure • High shipping economies of scale • High shipping economies of scale • Moderate shipping economies of scale • Moderate lead times to construct • Long lead times to construct • Short lead time to construct • Long load times • Short load times

Commerciality – issues affecting a port project’s commercial aspects • Capacity – maximum capacity as indicated in known plans: ✓ <5 Mtpa; ✓✓ 5-20 Mtpa; ✓✓✓ 20-40 Mtpa; ✓✓✓✓ 40 + Mtpa • Iron ore committed/potential users – the number of committed users for exporting iron ore from the port. This could be existing users (e.g., Arrium) or project proponents (e.g., Iron Road), or the number of potential users if it was a shared facility – e.g., Centrex via Cape Hardy. Note: each potential user may have multiple options in this table – no exclusivity is assumed. It is assumed that an access regime would be introduced if a port had more than one user.

36 BUSINESS CASE: SOLUTIONS TO BULK MINERAL EXPORT INFRASTRUCTURE ON SPENCER GULF Criteria* Strategic fit and economic development Overall rating RMIP Access to Potential Significant Import alignment existing multi regional capability infrastructure commodity economic Port operator benefits Port or proponent

Far North Region

Whyalla Arrium ✓✓✓ ✓✓✓ ✓ ✓✓✓ ✓ ✓✓✓

Port Flinders Ports ✓✓ ✓✓ ✓ ✓✓ ✓ ✓✓ Bonython

Eyre and Western Region

Cape Hardy Iron Road ✓✓✓ ✗ ✓✓ ✓✓✓ ✓ ✓✓✓

Port Spencer Centrex ✓ ✗ ✓✓ ✓ ✓ ✓

Lucky Bay Sea Transport ✓ ✓ ✓✓ ✓ ✓ Niche

Port Lincoln Flinders Ports ✓✓ ✓✓ ✓✓ ✓ ✓ Niche

Yorke and Mid North/Braemar Region

Myponie Braemar/ Royal ✓✓ ✓ ✓ ✓✓✓ ✗ ✓✓✓ Point^

Port Pirie Flinders Ports ✓✓ ✓✓ ✓✓ ✓✓ ✓ ✓✓

Port Havilah Havilah ✓ ✓ ✓✓ ✓ ✓ Niche Resources

Port Flinders Ports ✓✓ ✓✓✓ ✓✓ ✓ ✓ Niche Adelaide – Outer Harbour

• Cost to transport ore to port – relative ranking of transport costs between regions to the port: ✗ cost is prohibitive; ✓ cost is moderate; ✓✓ cost is relatively low • Construction lead time – estimated time of construction from time of approval for a mine using the port: ✓ >36 months; ✓✓ 18-36 months; ✓✓✓ <18 months

Strategic fit and economic development – alignment of existing strategies and economic development opportunities • RMIP alignment – qualitative assessment of alignment with RMIP to aggregate volume in and out of port and link with other facilities: ✓ slight alignment; ✓✓ moderate alignment; ✓✓✓ strong alignment • Access to existing infrastructure – qualitative assessment of physical access to transport/logistics and utilities: ✗ no access; ✓ limited access; ✓✓ moderate access; ✓✓✓ close access • Multi commodity: ✓ minerals only; ✓✓ minerals and grain • Regional impact – qualitative assessment of positive regional impact of development: ✓ slight impact; ✓✓ moderate impact; ✓✓✓ substantial impact • Import capability: ✗ no import capability; ✓ some import capability • Overall rating – qualitative assessment of port based on all criteria: ✓ partly meets needs; ✓✓ moderately meets needs; ✓✓✓ strongly meets needs; Niche – port with small capacity to meet local need

37 11 Key risks

A number of high-level risks for the development of port solutions have been identified. While some can be addressed at the operational stages of individual projects, others are risks the RIT suggests must be considered during the initial stages of assessing and prioritising port and other infrastructure proposals on a case-by-case basis.

Key risk Response

• Unable to balance the needs of competing • RIT will act as a facilitator to bring proponents stakeholders for the preferred port solution, so that together and provide expert advice on regulation fair, commercially viable third-party access is too and policy options difficult to achieve

• Global iron ore market demand changes negatively • RIT will ensure that projects supported by impacting on supply contracts (price and volume), government meet the threshold criteria potentially leaving stranded assets

• National competition laws restrict opportunities for • RIT will act as a facilitator to bring proponents collaboration in developing shared infrastructure together

• Customer resistance to paying (higher cost) premium • Development of an iron ore strategy to promote the for South Australian magnetite vs haematite benefits of South Australian magnetite

12 Observations and recommendations

The assessment and analysis in this business case lead the RIT to suggest that the following port locations are most likely to meet future demand for bulk export in the Spencer Gulf region: • the existing Whyalla port, in the northern Spencer Gulf, owned by Arrium Limited • the planned Cape Hardy port on central eastern Eyre Peninsula, proposed by Iron Road Limited • the planned Myponie Point facility on northern Yorke Peninsula, proposed by Braemar Infrastructure Pty Ltd.

In addition, there are a number of other existing and proposed ports, including smaller-volume operations, could also be developed to support bulk commodities exports and local supply chain requirements when market conditions improve. These include those at Port Pirie and Port Bonython.

It is important to highlight that the economics of a mining project, including confirmed investment in that project, is the single most critical issue that investors consider when contemplating investment in infrastructure associated with the project. Early provision of port infrastructure, without confirmed demand from a mining operation, is unlikely to drive investment in, and the subsequent development of, mining projects.

Given the current state of the iron ore commodity price cycle, the RIT recommends that a major role for government in securing resources-related infrastructure is in ensuring that all planning and regulatory issues related to mining projects are resolved, so that projects can proceed quickly when market conditions are favourable. Support may include the

38 BUSINESS CASE: SOLUTIONS TO BULK MINERAL EXPORT INFRASTRUCTURE ON SPENCER GULF creation of economic infrastructure corridors to support supply chain development and frameworks that promote and foster infrastructure aggregation and multi commodity use.

The proposed threshold criteria for resources projects (to trigger assessment and potential government support beyond case management) would form part of a detailed, staged assessment. As listed previously, they are based on: • commercial viability for the life of a mine • confirmed project funding with a strategic partner • customer off-take agreement for mine products • preferred port location for the export of product • timing for development (including feasibility, approvals and construction) • aggregation options for projects.

This information would help government assess, prioritise and potentially facilitate the development of regional supply chain infrastructure, including using non-financial options to support both the projects and the state’s economic development.

The government may consider providing support (on a case-by-case basis) in the form of financial/funding incentives and solutions to minimise investor risk – including support when projects are at the marginal stage for bankability – to enhance the prospects of financial closure and subsequent development. Figure 3 below indicates how government might assess its support options.

Figure 3: Gateway approach for government support

Government criteria Yes - prepare detailed Government considers - commercial viability of mine business case support options depending on Project proposal - confirmed strategic partner investment risk profile on case-by-case - customer offtake agreement basis - non-financial - defined port location - financial - development timeframe No - private sector develops port - aggregation for projects Normal case Private sector management support develops port

The current low phase of the iron ore commodity cycle gives government an opportunity to plan and finalise supporting regional infrastructure and port development priorities as well as other proposals that will support demand when the cycle changes.

39 12.1 Summary

In summary, the RIT offers observations and recommendations to support the government’s considerations and decision-making in this period. 1. The commercial viability of a mining project will be the single most critical issue that potential investors consider when looking to invest in associated infrastructure. 2. The RMIP outlined a ‘low growth’ scenario. However, at September 2015 the iron ore commodity price was sitting at about 70 per cent below its peak of US$186 a tonne (2011), and was lower than this ‘low growth’ projection. At this point in the commodity cycle, investors are unlikely to invest in greenfields port infrastructure without mining demand under these conditions, and there are greater challenges to investing in greenfields port infrastructure. An early decision with respect to a port solution is unlikely, in isolation, to drive mining project development. 3. The Department of State Development (DSD) and the Department of Planning, Transport and Infrastructure will continue their work in planning port solutions that will facilitate the development of projects when commodity prices increase. 4. DSD will develop and promote a South Australian Iron Ore Strategy and scope a Centre of Excellence for research and development to position South Australian magnetite internationally as a premium source of iron ore product for steel making. 5. Even if an increase in the iron ore commodity price resulted in immediate investment in an iron ore project in South Australia, a supporting high-capacity port is unlikely to be built to meet the RMIP recommended timelines – that is, by 2018 on western Spencer Gulf and by 2019 on eastern Spencer Gulf. 6. Of the assessed proposals, the port locations most likely to meet potential future demand for bulk minerals exports from the Spencer Gulf region are: -- the existing Whyalla port, in the northern Spencer Gulf, owned by Arrium Limited -- the planned Cape Hardy port on central eastern Eyre Peninsula, proposed by Iron Road Limited -- the planned Myponie Point facility on northern Yorke Peninsula, proposed by Braemar Infrastructure Pty Ltd. In addition, there are a number of other existing and proposed ports, including smaller-volume operations, could be developed to support bulk commodities exports and local supply chain requirements when market conditions improve. These include Port Pirie and Port Bonython ports. 7. The Whyalla port owned by Arrium Limited has immediate excess capacity – and the potential for expanded capacity – that could meet the needs of other users in providing a port solution in the Spencer Gulf and in supporting the development of iron ore projects. 8. The South Australian Government could consider financial and non-financial options for supporting the provision of supply chain infrastructure to projects in the mining and resources and other sectors. 9. The South Australian Government’s current review of state planning laws provides a starting point for legislative reform that could create economic infrastructure corridors to meet industry, infrastructure, planning and community requirements.

40 BUSINESS CASE: SOLUTIONS TO BULK MINERAL EXPORT INFRASTRUCTURE ON SPENCER GULF 13 Implementation and RIT activities

In 2015/2016, the RIT will refine the threshold criteria for government support and develop various non-financial and financial support options available to government.

Figure 4 below provides an overview of the proposed workflow model for the assessment of supply chain infrastructure development to support mining projects and provide a framework for government solutions.

Figure 4: Workflow for government solutions model

Regulatory and non- Threshold criteria for financial support government support Government assesses - Commercial viability support options of mine State as landlord Project - Confirmed strategic Detailed business case proposal partner - Customer off-take Co-investment (debt/ agreement Private sector concessional loan) - Defined port location develops port - Timing for development Revenue guarantee Watching brief - Aggregation of project

The RIT will also progress the RMIP recommendations for other infrastructure development in South Australia to support forecast resources sector demand, with support from DSD and DPTI.

Arrium Mining’s port expansion at Whyalla (Photo courtesy of Arrium Mining)

41 Contact

Department of State Development Level 4, 11 Waymouth Street Adelaide, South Australia 5000 GPO Box 320 Adelaide, South Australia 5001 T: +61 8 8226 3821 E: [email protected]

Published September 2015. No responsibility for any loss or damage caused by reliance on any of the information or advice provided by or on behalf of the state of South Australia, or for any loss or damage arising from acts or omissions made, is accepted by the state of South Australia, their officers, servants or agents. Produced by the Department of State Development © September 2015. Content correct at time of printing.

www.statedevelopment.sa.gov.au 42