Exclusive: Australia's Rinehart clears hurdles on $10 billion iron ore project - sources

Thu Jul 18, 2013 5:55am EDT
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By Sharon Klyne and Joyce Lee

SYDNEY/SEOUL (Reuters) - Australian mining magnate Gina Rinehart's $10 billion Roy Hill iron ore project has overcome key hurdles holding up debt negotiations, a move that could pave the way for the mine to start producing by September 2015, sources said on Thursday.

Getting Roy Hill into production is likely to further boost the fortunes of Rinehart, already Australia's richest person with a net worth estimated by Forbes at $17 billion.

However, it could also add to an expected glut of the steel-making ingredient as rivals Rio Tinto (RIO.AX: Quote), BHP Billiton (BHP.AX: Quote) and Fortescue Metals Group (FMG.AX: Quote) crank up production just as demand in top consumer China is set to cool.

The 55-million tonnes-a-year project, which would make Roy Hill Australia's fourth-largest iron ore producer, has been steadily pushed back amid delays in lining up $7 billion in debt funding.

Export credit agencies (ECAs), including Export Import Bank of Korea (KEXIM), Japan Bank for International Cooperation (JBIC) and Nippon Export & Investment Insurance (NEXI) had been pressuring Roy Hill shareholders led by Rinehart's Hancock Prospecting Pty Ltd to fully guarantee that the project reaches completion, in return for up to $5 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.   Continued...