UPDATE 1-Australia state to consider royalty relief for magnetite iron ore

Wed Nov 21, 2012 5:25am EST

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* Lower royalty rate aims to jumpstart stalled projects

* Delayed $6-bln Oakajee Port & Rail project expects to benefit

* Others that could gain are $8-bln Sino-Iron project and Gindalbie

By Rebekah Kebede and Sonali Paul

PERTH/SYDNEY, Nov 21 (Reuters) - The state of Western Australia may extend a concession on royalty rates to producers of magnetite iron ore, in a bid to jumpstart projects stalled by a slump in demand for the steel-making raw material, its premier said on Wednesday.

Magnetite iron ore is a low grade that requires expensive processing before being exported, making such projects much tougher to justify, compared with the ore produced by giants Rio Tinto and BHP Billiton.

Colin Barnett said the state, which produces nearly all of Australia's iron ore, would consider lower royalty rates in the expensive start-up phase of magnetite projects, but the plan still needed to be approved.

"We will sit down with each of the iron ore producers and discuss with them and provide a royalty concession through the initial start-up stages," Barnett told a conference in Perth.

Iron ore prices at $120 a tonne have recovered from a slump in September to a three-year low below $87, but are down almost 13 percent this year, after a loss of more than 18 percent last year.

Development of Western Australia's magnetite projects is key to spurring development of the A$5.9-billion ($6.1 billion) Oakajee Port and Rail project, which Japan's Mitsubishi Corp put on ice two weeks ago after failing to find a partner, despite talks with Chinese companies.

OAKAJEE HOPE TO RESUME TALKS NEXT YEAR

Oakajee Port and Rail hopes to resume the discussions next year, Chief Executive John Langoulant told reporters.

"Negotiations, up until recent months, had been tracking along pretty well. We are hoping they get reinvigorated in the new year," he said, adding that the lull was possibly due to last week's leadership change in China.

Barnett, who faces re-election next March, has long flagged the development of Oakajee as a new industrial hub as one of his top priorities.

"It's a big day for magnetite because for the premier to announce that there will be a blanket concession rate for start-up projects, it is really going to help with investment attraction," said Megan Anwyl, executive director of mining industry body the Magnetite Network.

"The premier has made it clear that the state government wants to get behind the magnetite industry," Anwyl told Reuters.

A royalty concession would benefit Citic Pacific's $8-billion Sino-Iron project, which is on the verge of starting up, two years behind schedule, and Gindalbie Metals, which recently started commissioning at its Karara iron ore project, co-owned with China's Angang Steel.

Oakajee's Langoulant said the royalty relief would help the stalled infrastructure development as well, adding that the mine needed to export at least 35 million tonnes to be able to fund the project.

"We need to get other mines up and running... You need substantial tonnages of iron ore to be able to finance (the port and rail development)," he said.

Other miners studying magnetite projects include Mitsubishi, which has slowed its $3.7-billion Jack Hills magnetite project, Fortescue Metals Group with Baoshan Iron & Steel , and Grange Resources.

The state wanted to send a signal to China and Japan that it was not going to tax the magnetite industry out of existence, Barnett said.

"We're going to do exactly the opposite and we're going to lower royalty rates during those start up years to give a positive endorsement and to see this industry get underway," he said. But his office declined further comment on the measure.

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