Roy Hill moving forward (or not?)


Gina’s AFR continues to pour forth rumours of progress for the big Roy Hill  iron ore mine:

Export credit agencies including Export Import Bank of Korea (KEXIM), Japan Bank for International Co-operation (JBIC) and Nippon Export & Investment Insurance (NEXI) had been pressuring Roy Hill shareholders led by Rinehart’s Hancock Prospecting to fully guarantee that the project reaches completion, in return for up to $US5 billion of loans.

The export credit agencies also sought payment guarantees for ore purchase contracts by Chinese steel mills, said a banking source familiar with the talks.

The parties have now negotiated a compromise to break the deadlock that had threatened to delay the project further in Western Australia’s iron-rich Pilbara region.

“Although a guarantee from a party with strong credit would be one of the simplest ways to move the project forward in the eyes of the ECAs, it is not the only way to reduce risks,” said a second source with direct knowledge of the negotiations.

“Such ways have been sufficiently agreed upon, and negotiations are moving ahead speedily,” added the source, without elaborating on the agreement.

…thanks to the quality of Roy Hill’s ore and relatively low cost base, prices are not the overriding concern for lenders.

The last sentence is the only one that matters. “Relatively low cost base” means what what I wonder? With the approval of Vale’s enormous Carajas expansion and Rio committed (it seems) to its Pilbara 360 expansion, if this beasty goes ahead I’m going to have to significantly drop my long term $80 price forecast.

No wonder everyone wants guarantees!

David Llewellyn-Smith
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