* Funding woes hit West Pilbara Iron Ore project
* Soaring costs and volatile commodity prices take toll on
new mine developments
* Strengthen hand of mega producers BHP Billiton and Rio
* Aquila shares tumble nearly 10 percent to one-month low
By Sonali Paul
MELBOURNE, Feb 4 Australia's Aquila Resources
Ltd has put a A$7.4 billion ($7.7 billion) iron ore
project on ice at least through June due to funding
difficulties, as soaring costs and volatile commodity prices
take a toll on new mine developments.
The West Pilbara Iron Ore project in Western Australia is
one of a number that have stalled since the mining boom cooled
last year in the world's top iron ore exporter after Chinese
Aquila's project required billions to be spent on rail and
port access, stretching funding prospects when benchmark ore
prices hit three-year lows last year, although prices have since
Troubles facing new projects have cemented the power of mega
miners Rio Tinto and BHP Billiton, the world's
No.2 and No.3 producers, who dominate the iron-ore rich Pilbara
and can crank out supplies more cheaply using existing rail and
Aquila and its partners American Metals and Coal
International (AMCI), a mining investment firm, and South Korean
steel giant POSCO effectively froze the project last
September, as they failed to agree on a budget for the year to
The dispute went to arbitration, and the process had been
due to begin on Feb. 18, but Aquila said on Monday it had bowed
to its partners and would continue the project suspension for
the rest of this financial year.
"Aquila will continue to focus its efforts on how best to
progress the project," executive chairman Tony Poli said in a
The company said last week the project's director, Kevin
Watters, had quit. He will join a competitor, Brockman Mining
, working on the Marillana iron ore project also in the
Pilbara, which has more options to export its ore.
Aquila and its partners have yet to agree on a replacement
Shares in Aquila, 14 percent owned by China's biggest
listed steelmaker, Baoshan Iron & Steel Co (Baosteel)
, sank to a one-month low of A$2.82 and last traded
down 4.8 percent at A$2.97.
Securing funding for the West Pilbara project, owned by the
API joint venture, grew tougher last year as the cost estimate
on the project soared 28 percent to A$7.4 billion and forecast
operating costs also increased by about a quarter.
Assuming the project was 40 percent equity funded, Aquila's
share of the equity funding would be around A$1.5 billion.
As of December, the company had A$441 million in cash,
thanks to recent asset sales, and will receive a further A$170
million by the end of March from the sale of its stake in a coal
project to Brazil's Vale.
One solution to ease Aquila's share of the funding burden
would be to sell down its stake in the project to Baosteel.
Aquila's Poli, who owns 29 percent of the firm, was not
immediately available to comment on options to advance the
The West Pilbara Iron Ore project won state environmental
approval last week for its proposed Anketell Port, but still
needs rail and port construction approvals, key to its plans for
exporting 30 million tonnes a year of ore.
The Western Australia state government has said it will not
approve construction of Anketell Port until it is certain the
project's backers have the funds to build a mine, a 282 km rail
line and the multi-user port, which will depend on what has
become an increasingly volatile iron ore market.
Rio Tinto, in contrast, has no such problem, having won
approval on Monday from the state to expand its Nammuldi mine
and build a 130 megawatt power station, a $3 billion iron ore
project that is part of its plans to increase annual capacity to
360 million tonnes by 2015.
Aquila has been shedding assets over the past two years to
build up its 50 percent share of equity funding for the West
Pilbara Iron Ore project.
The API joint venture, 50 percent owned by Aquila, 25.5 pct
by AMCI and 24.5 pct by POSCO, has wound down all engineering
and design work for now, Watters told Reuters last week.
He said that with the heat having coming out of the
construction market as several projects have been put on hold,
the joint venture should be able to negotiate lower construction
and engineering costs when it comes back to the market.
"It's certainly a keener market now in the engineering space
and in the construction space," Watters said.