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Miners sound warning on Port Hedland investment amid Atlas concerns

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Miners sound warning on Port Hedland investment amid Atlas concerns

Miners have warned policymakers to think ahead on expanding the Port Hedland port infrastructure that will require "significant" investment down the track, after Western Australian Mines Minister Bill Johnston called for a federal government partnership ahead of future capacity constraints.

The comments coincide with midtier miner Atlas Iron Ltd.'s share price falling 18.2% June 14 after the minister for transport, planning and lands said the company did not have a priority right to develop new berths with export capacity of 50 million tonnes per year at Port Hedland. The company's shares were back up slightly in morning trading today.

The minster's call will impact bigger iron ore players Hancock Prospecting Pty Ltd. and Fortescue Metals Group Ltd., both of whom have just made successive major investments in Atlas in the past week or so.

In 2015, the state government identified ways to increase the shipping capacity in Port Hedland's channel, which accounts for 3% of Australia's GDP, by 16% over the following three years from 495 million tonnes a year to 577 million tonnes, but Johnston said more could be done with federal assistance.

"Not one cent of Commonwealth money has ever been used to support that essential piece of economic infrastructure," Johnston told delegates at the June 13-14 Association of Mining and Exploration Companies, or AMEC, convention in Perth. "Imagine how we could improve the opportunities here in Western Australia if we could gain that additional partnership to support our economic infrastructure development in Western Australia not just for the benefit of industry or even West Australians, but for the whole country."

BHP Billiton Group proposed to develop the outer harbor off Finucane Island in a A$1 billion project, but it never went ahead as the need was not there for BHP and others to continue to grow their production. This was because port capacity has been able to grow within the existing port, and industry sources say there is still some room for increased production to go through.

Johnston later told S&P Global Market Intelligence that the port investment issue was not pressing right now, but his call was more to make the point that there are many areas in which the federal government could do to help his state, particularly given the Commonwealth is investing A$5.3 billion to expand airport capacity in Sydney.

He also cited Adani Enterprises Ltd. which was to receive a A$900 million Northern Australia Infrastructure Facility loan to help build a 400-kilometer rail line to connect its proposed Carmichael coal project with a port in Queensland, but was vetoed by that state's government.

Sen. Matt Canavan, federal minister for resources and Northern Australia, told S&P Global Market Intelligence on the AMEC convention sidelines that the Commonwealth was "always happy of course to look at investments," particularly with the A$5 billion Northern Australia Infrastructure Facility, adding that he spoke to Johnston after his address and discussed "if there are investments at Port Hedland they're keen on to work together."

He noted that the Commonwealth is also funding investments to help upgrade both the key Tanami road and the Karratha to Tom Price road both of which industry sources told S&P Global Market Intelligence are in a poor state — with some of the A$3.5 billion which the federal budget just put aside for "roads of strategic importance."

Forward thinking needed on port

AMEC CEO Warren Pearce told S&P Global Market Intelligence on the convention sidelines that the current concern for the Pilbara ports was not about growing capacity at the moment, but ensuring that it is retained so juniors can access that space.

"If the multi-user jetty was to be privatized, which has been raised by the state government in the past, we'd be very concerned to make sure the access arrangement for juniors are retained in any future private operation," Pearce said, though he added that there was no contention currently that the designated space was in any doubt for juniors.

However, forward thinking is needed because "if you ramp up production, things happen unexpectedly and more quickly than people think, and with a capacity limit it's going to take you several years to go through the approvals process and get something built."

"We've been engaged with Pilbara Ports Authority about strategic planning and the long-term vision at the port over the last few months, talking about a 30-year window; we're yet to see what's coming out of that process," Pearce said. "We want to ensure that the capacity is kept for junior players, like it exists now around Utah Point, and with some news in the market around Atlas Iron and others, we want to ensure that space is reserved for the juniors, and you can start to see that junior production growing."