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