The Oakajee rail and port project has had the most fraught history of any infrastructure development in Australia.
Over the past quarter of a century, every participant has suffered either financial or reputational damage and not an inch of rail track has yet been laid.
The latest in the long queue appears to be Padbury Mining (PDY), which has grandiose plans to finance the project.
PDY has been suspended from trading on the Australian Securities Exchange since April 11 and became the centre of a scandal this week when the colourful history of its funding source – hair clinic entrepreneur Roland Bleyer – was publicised in the nation’s press.
The rationale for the project is that it would allow large-scale exploitation of the billions of tonnes of iron ore in the mid-west of Western Australia.
The mines that have been opened in the region at present ship out through Geraldton, once a sleepy fishing port and not well-quipped to handle big bulk shipments.
Its access channel is shallow and hard rock, making it unsuitable for dredging. Oakajee, 30 kilometres north, is deep water and would be a better port.
The economics of bulk commodities are all about logistics. The problem with developing the mid-west iron deposits are that:
1. few of them are close to the coast;
2. they are held by 21 small to medium-sized companies, none of which has the billions necessary to fund the project;
3. the deposits are scattered over 180 kilometres north-south;
4. there is some rail access for the southern ones, but none for the northern, which need not one but probably a network of rail lines; and
5. while they have some direct shipping ore, the bulk of the deposits are magnetite, not the high-grade hematite ore that has enriched Rio and BHP in the Pilbara.
These problems have stymied many previous entrepreneurs. Nick Zucks floated Kingstream Resources in the 1990s, with Ken Court (son of Sir Charles) as chairman. That venture collapsed in 2001 after racking up $770 million in losses.
A few years later, Murchison Minerals, in partnership with Mitsubishi, tried to build a rail line from its Jack Hills deposit to Oakajee. Jack Hills was one of the northern deposits.
Trucking its ore 600 kilometres to Geraldton was costing maybe $50 a tonne (author’s estimate), meaning the operation was unprofitable until a rail line could be built.
A rail line was meant to be built by 2012 (2014 at the latest) but Mitsubishi threw in the towel and not one sleeper was laid.
Padbury’s deposit is at Telecom Hill, a little further north and inland than Jack Hills. Indeed, Telecom Hill is almost as close to Rio’s port of Dampier in the Pilbara as it is to Oakajee. PDY has a magnetite resource of 925 million tonnes averaging 27.2 percent iron.
The Pilbara mines export hematite averaging 62 percent iron, which they rail straight onto a wharf. Magnetite ores are typically lower grade, but make good blast furnace feed if they are beneficiated, which adds to the cost of their production.
The estimated cost of an Oakajee rail line and port is $6 billion.
PDY’s last half-yearly report showed it lost $1.5 million in the six months to December and was holding less than $2 million cash. It has 3.3 billion shares on issue, which were trading at 3.3¢ before it went into suspension.
Its funding is supposed to come from, or through, Bleyer, who at various times has reportedly: offered to help the Greek government raise €20 billion; held down a key role at the Azerbaijan Bank; offered to help fund Fortescue; and been worth kidnapping.
Over the decades, we’ve seen plenty of previously unknown big shots suddenly appear, talking about money in astronomical numbers and offering to miraculously find fortunes to fund big enterprises.
I cannot recall one of them who ever actually came up with the money or saved the project.
If Bleyer does, he’ll be the first. I’m not holding my breath.
[Warning. Trevor Sykes is NOT a licensed investment advisor. Invest at your own risk.]