Appendix 13 Executive Summary ‘The modern world is built on steel which has become essential to economic growth. In developing and developed nations alike, steel is an indispensable part of life … The future growth in demand for steel will be driven mainly by the needs of the developing world.’1 Note: 87% of all world metals consumed are iron and steel. Australia is rich in natural resources. Among the key resources in abundance are iron ore and thermal and coking coal; the key feedstock for steel. Queensland has an abundance of coal, while Western Australia has an abundance of iron ore. Australia has a small population with limited steel production, so these resources are shipped internationally to be used as inputs to steel production. Strong growth in raw steel production and consumption, driven by the rapid industrialisation of China and India in particular, is expected to continue. This will necessitate substantial investment in new global steelmaking capacity. Australia plays a significant leading role in the export steelmaking supply-chain as it has an estimated 40% of the world’s high grade seaborne iron ore and 65% of the world’s seaborne coking coal. Project Iron Boomerang was developed by East West Line Parks Pty Ltd (“EWLP”) to explore the economic feasibility of establishing first-stage steel mill semi-finished steel production in Australia, close to the major raw materials inputs. This Pre-Feasibility Study provides strong evidence that the construction of first-stage smelter precincts offers many cost effective consolidation and efficiency savings, and that a dedicated railroad with all supporting infrastructure is feasible and economically favourable for steelmakers. The project will also deliver major energy savings for related global environmental benefits. This study outlines a convincing case for steel manufacturers and others to participate in the full Feasibility Study of PIB. 1. Project Iron Boomerang There is a clear need for additional global steelmaking capacity. Project Iron Boomerang (“PIB”), being located in Australia, is uniquely suited to meet a portion of that expanding demand as a result of five major advantages. · Proximity to the major global demand for steel, particularly in Asia; · Availability, sustainability and quality of the major steelmaking raw material inputs; · Competitiveness and blending capability for the supply of these resources; · Availability of large sites to accommodate the smelter precincts; and 1 Ian Christmas, IISI Secretary General, Dec 2007, UNFCCC Conference, Bali. · Stability and low sovereign risks involved in major investments. The PIB business case is focussed on facilitating the construction of twelve 10,000 hot-metal tonnes per day (3.6m tpy) first-stage steel smelter units, producing a total of 44 million tonnes per annum of slab steel. Iron ore and coal will be transported to common points for processing. Iron ore will be transported to Queensland to be combined with the coal, while coal will be transported to Western Australia to be processed with the iron ore. The steel smelters will be constructed in industrial precincts (smelter parks) in Queensland and Western Australia. PIB will develop the precincts, which will include shared ore reception facilities, ore stockpiles (iron ore and coking coal), stacker/reclaimers, conveyor systems, coke, oxygen and electricity production, water and other utilities, and steel slab export facilities. Participating steelmakers will construct, own and operate their steel smelters. The second major feature of PIB’s business case is the construction of a new transcontinental railroad to transport the raw materials. Among the economic and environmental advantages of PIB is that the trains will be fully utilised during their transits in both directions. Figure 1 illustrates the railway and its connections to the major resources in Western Australia and Queensland and to the ports from which the steel slabs will be shipped. Figure 1 Transcontinental railway connecting iron ore and coal 2. Key Value Drivers The key value drivers of PIB relate to efficiencies in the supply-chain, precinct economics and environmental benefits. The drivers are: · Reduce transport and other supply-chain costs by a three times consolidation of major raw material inputs before shipping, and to - 2 - maximise back-loading of ships and trains (coal railed west and iron ore railed east); · Develop synergies in co-location of raw material production and make available large smelter park sites suitable for the consolidation of industry; · Facilitate construction of high efficiency steel smelters using world-class technology; · Provide benefits of co-location of steel smelters, shared services and efficiencies in managing energy inputs and outputs; and · Deliver major global environmental benefits from improved transport efficiencies, modern first-stage steel production techniques and optimised efficient energy utilisation through co-generation use of secondary and tertiary heats. · New inland prospect mine developments up to US$50 billion; stemming from the PIB transcontinental rail transport infrastructure services · $9 billion (as at Sept 2007) in infrastructure expansion CAPEX is saved by locating the first-stage production in Australia; PIB consumes 116 million tonnes of iron ore, coal and limestone which is transformed to 44 million tonnes of slab steel, shipped overseas. The consolidated “takeout factor” is 72m t of infrastructure capital expenditure not needed; ships, trains wharves in both sending and receiving countries. This greatly reduces the strain and the resultant financial risk overexposure for an ordinary or bad market time. 3. Project Stages There are five stages to the development of Project Iron Boomerang. · Pre-Feasibility: establishment of project concepts and operational requirements, financial models and major steelmakers and/or investor commitment to the Feasibility Study; · Feasibility Stage: proof of concept and definition of project operational requirements, detailed project scoping, preliminary engineering environmental impact assessment, cost estimates, market viability, planning and other regulatory approvals, risks assessments, management and allocation strategies, resulting in confirmation of the business case and a “bankable” Feasibility Study; · Commitment and Financial Closing: develop investment agreements and briefing requirements to gain commitments from steelmakers to build smelters, reach necessary agreements with governments, develop major procurement contracts and call tenders for EPCM and/or DCM contracts, and completion of due diligence processes by investors and suppliers; · Implementation: land acquisitions by government, as required, for lease to EWLP, engagement of project managers, detailed engineering and - 3 - environment management plans, procurement of design and construction, procurement of rolling stock and precinct plant and equipment; and · Operations: commissioning and commencement of operations. This report marks the conclusion of the first stage and transition into the second stage, as the necessary funding is obtained for the Feasibility Study. 4. Key Project Elements There are a number of key project elements. · Smelter Parks – Each precinct will provide sites for six steel smelters and supporting industry (such as coke production plants) at each end of the East West Line (“EWL”). Smelter park locations are proposed for near Newman in the Pilbara in Western Australia and Abbot Point in Queensland. The possibility of further development is discussed in Section 8 of this report, and will be evaluated during the Feasibility Study. · Infrastructure – The facilities necessary for servicing the smelter parks and steel smelters (water, precinct transport logistics, power, gas, waste management, etc.) will be constructed. This will include the effective management of environmental outcomes within the smelter parks. · Rail link - EWL will be a standard gauge railway to current “world's best practice” heavy-haul standards. It will be approximately 3,370 km long. · Port facilities – Ports at Abbot Point and at Port Hedland (or other proposed ports in Western Australia) will be used for the export of the steel slabs to the consuming markets in Asia for finishing and sale. Details of the concept, the precincts and the transport arrangements are provided in this report. The Project Case adopts the assessed EWL rail charges and the materials handling logistics costs of stockpiling and delivering the iron ore and coal in the precincts to the individual steel smelter gate, and the costs of transporting steel slab from each smelter to the Australian port. 5. Market Overview The implications of the business environment for PIB are: · Australia is well placed geographically with very competitive, high quality iron ore and coking coal resources and very large reserves; · The smelter parks and railway are located in sparsely populated regions, and will have minimal impact on existing land uses and populations; · PIB’s financial feasibility and global environmental benefits are strongly positive; and · There is a continuing need to replace existing production capacity that is obsolete, or economically or environmentally requiring replacement. - 4 - PIB is not a threat to major trading nations’ maintenance of steelmaking capacity. The project case provides for only 44M tpy of production out of a forecast world-wide new steelmaking capacity of over 500M tpy over the next decade. So PIB is targeting less than 10%