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Murchison Metals updates market on Oakajee Port & Rail infrastructure project

Murchison Metals (ASX: MMX) in a market update has welcomed the approval by the Western Australia Government that it has approved the Oakajee Rail Corridor Nomination Report (Revision 18), which confirms the rail corridor for the Oakajee Port & Rail (OPR) infrastructure project.

Murchison said that the declaration represents a formal endorsement of the rail route nominated by OPR for heavy-haul rail access to the proposed port at Oakajee.

The approval of OPR’s rail corridor is a key step preceding the introduction into the State Parliament of a Special Act, which will enact the legislative arrangements enabling construction of rail within the defined corridor.

The OPR joint venture

Oakajee is a 50:50 joint venture between Murchison and Mitsubishi Development Pty Ltd, to export ore from the Jack Hills project.
Jack Hills is owned by Crosslands Resources, with Murchison and Mitsubishi each holding a respective 50% stake in Crosslands.
Crosslands produces a high quality product at 65% iron grade for lump and 63% iron for fines, with these grades ensuring high demand at any stage during global economic cycles.

Murchison strategic review

As part of its ongoing strategic review, Murchison is evaluating a range of options to advance the development of the Oakajee infrastructure project and Jack Hills Expansion Project.

As advised previously, Murchison considers that the project schedule is largely dependent on the resolution of commercial arrangements between OPR and its targeted foundation customers.

To date, agreement on these commercial arrangements has not been achieved, such that the project development schedule remains uncertain.

Murchison believes that restructuring the ownership of OPR represents the best means of achieving a commercial outcome that meets the needs of all parties and would enable the projects to proceed.

Consequently, Murchison is actively engaging, or seeking to engage, with all stakeholders and parties with an interest in the development of the projects, including the WA Government, to achieve such an outcome.

Murchison welcomes and supports the active involvement of WA Premier Colin Barnett in this process, including his initiatives to facilitate Chinese participation in the Oakajee project.

Murchison believes this contemplated involvement of other parties in the project naturally assumes an inclusive, rather than exclusive, approach to project development.

Initiatives and planning

Given these initiatives, and the significant project planning, evaluation and engineering undertaken since late 2007 to achieve the currently advanced state of project design and regulatory approvals in areas such as environment and heritage, Murchison believes that OPR remains the most appropriate vehicle for the project’s development, regardless of whether OPR retains its exclusive rights to develop the port and northern rail infrastructure beyond the end of 2011.

Murchison considers that the progress made by OPR to date cannot be easily or quickly replicated and that any commercial outcome that would enable the project to be developed so as to provide the foundation customers with a route to market in the shortest possible timeframe would naturally take advantage of this pre-existing body of work and approvals.

The Western Austrakuab Government’s approval of OPR’s rail corridor is consistent with this view.

The Oakajee State Development Agreement (SDA) provides the legal framework under which planning for the project is progressing.

The SDA requires that the State and OPR use reasonable endeavours to execute Implementation Agreements for the project by 31 December 2011 (the “Sunset Date”). Under the SDA, if Implementation Agreements are not executed by the Sunset Date, OPR’s exclusive rights may lapse.

Regardless, the SDA will remain in force and continue to provide the framework for the project’s development beyond the Sunset Date unless either the Western Australia Government or OPR elect to terminate the agreement.

If Implementation Agreements are not executed by the Sunset Date due to a default or breach by OPR of its obligations under the SDA, the Western Australia Government may exercise an option to acquire OPR’s intellectual property relating to the project.

OPR may also require the State to acquire the intellectual property in the event that failure to execute the agreements is due to a breach or default by the State.

Importantly, failure to execute Implementation Agreements by 31 December 2011 does not in itself result in a breach of the SDA.

With respect to the strategic review, Murchison remains in confidential and incomplete discussions with a number of parties. There can be no assurances that a transaction will emerge which is either capable of being recommended to shareholders or otherwise enacted by the company.