Another Lost Mega-Project

Mitsubishi doesn’t want to spend $10 billion on Australian iron ore.

The Japanese conglomerate said this week it will suspend its Jack Hills mine project in Western Australia. The proposed project had included an expansion of iron ore mining here, and an associated port and rail development.

But even this deep-pocketed firm ended up balking at the US$10 billion price tag for the work. Mitsubishi had been seeking an equity partner. But having failed to find one, the company has now let go of most of the local staff and is winding down the project.

This is a sign of the times. Cost inflation has made it nearly impossible to pull off huge projects like this.

We’re now into a phase where only the very best projects survive. Jack Hills didn’t make the cut. The development was a play on a new and remote iron ore district. One that needed a lot of associated infrastructure to make it work. It was a bull-market dream.

The dreaming is over. Developers today are looking for the best-located, the largest, the highest-grade, the lowest bars in terms of capex and opex. Everything else is going to go poof.

Ultimately, this will be excellent for the projects that remain standing. Costs will come down as labor and supplies are freed up from inferior works.

It just means you need to look for quality, rather than re-hashed or second-tier ideas.

Here’s to striving for the best,

Dave Forest

dforest@piercepoints.com / @piercepoints / Facebook

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