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IRON ORE PROCESSING (MINERALOGY PTY. LTD.) AGREEMENT BILL 2002
Introduction and First Reading

Bill introduced, on motion by Mr Brown (Minister for State Development), and read a first time.

Second Reading

MR BROWN (Bassendean - Minister for State Development) [7.54 pm]: I move -

That the Bill be now read a second time.

The purpose of this Bill is to ratify the Iron Ore Processing (Mineralogy Pty. Ltd.) Agreement dated 5 December 2001 between the State of Western Australia, Mineralogy Pty Ltd, and six co-proponent companies. This agreement has been negotiated to facilitate the mining and processing of magnetite iron ore from mining leases held by Mineralogy Pty Ltd at Fortescue, near Cape Preston, in the Pilbara region.
To put this proposed legislation in context, it is important for members of the House to note that, as is the case with all recent state agreements for resource development, this agreement does not override or modify the operation of the State's Environmental Protection Act or the Commonwealth's Native Title Act. The requirements of those Acts must be satisfied before any development proposals can be approved or any new tenure can be granted under this agreement.

The agreement, when ratified, provides for Mineralogy by itself or in conjunction with one or more of the co-proponent companies to develop projects incorporating the mining and concentration of iron ore and the processing of that iron ore into high-grade steel pellets, direct reduced iron and/or steel. The agreement further provides for the transport of product within the Pilbara, the establishment of new port facilities in the region, and the shipping of processed iron ore through such port facilities.

Further processing of the State's iron ore has been an objective of successive Western Australian Governments since the export iron ore industry was established in the mid 1960s. This objective has proved to be difficult to achieve. Earlier iron ore processing projects have ceased to operate due to prevailing economic conditions, with the closure of the Pilbara pellet plants in 1979 and 1980 and BHP's Kwinana blast furnace in the early 1980s.

Mineralogy Pty Ltd acquired the Fortescue iron ore deposits from Hanna Mining in 1986.

The ACTING SPEAKER (Mr McRae): Order! Members, we have just had a number of points of order about people in the public gallery making too much noise. There is enough noise in the Chamber for me not to be able to hear the minister. I would appreciate members keeping their comments to a less audible level.

Mr BROWN: The Fortescue deposits are located approximately 85 kilometres south west of Karratha. The iron ore is a low-grade magnetite, a type of ore that is abundant but to date has not been exploited in Western Australia. The ore is amenable to upgrading by well-established magnetic separation processes to achieve a high-grade concentrate. The concentrate can then be further processed to produce high-grade pellets, direct reduced iron, steel, or a combination of these products. Development of one or more of these products is the basis of the Iron Ore Processing (Mineralogy Pty. Ltd.) Agreement.
Negotiation of the Mineralogy agreement was first approved in 1994 and was essentially completed in 1998. At that time, the minister of the day advised Mineralogy that approval would be sought from Cabinet for parliamentary drafting and for the agreement to be executed once he was satisfied that commercial negotiations in regard to at least one project were successfully completed and the project proponents had made substantial progress in obtaining the various government approvals. Further, the minister indicated to Mineralogy that it would not be appropriate to take the

This Government has maintained the same position as outlined to Mineralogy by the previous Government. The Government is now satisfied that Mineralogy has brought together a consortium of internationally reputable companies to participate in an integrated iron and steel project involving developments in both Western Australia and New South Wales - namely, the Austeel Pty Ltd project. Mineralogy is progressing evaluation, approvals and financing for the project. The public of Western Australia has had an opportunity to comment on the environmental impact statement that has been presented to the Environmental Protection Authority. Accordingly, the Government has now executed the agreement and is presenting it to Parliament for ratification.

I will now provide some information on the first project that is proposed under the agreement, which is known as the Austeel project. As I have mentioned, the Environmental Protection Authority is currently assessing the environmental impacts expected from this project. The Austeel consortium proposes to produce 4.6 million tonnes a year of direct reduced iron in the Pilbara and ship it through a new port facility at Cape Preston to a new steel mill in Newcastle, New South Wales. The Government of New South Wales has entered into an agreement with Austeel and is working to facilitate establishment of the new steel-making plant and associated port facilities in Newcastle. Austeel has recently notified the Environmental Protection Authority that it also aims to produce 6.9 million tonnes a year of iron ore pellets for export.

The Austeel consortium includes major players in the world steel, industrial plant technology and engineering industries. In addition to Mineralogy, the consortium includes -

Corus Group, formed through the merger of British Steel and Dutch steel maker Hoogovens in 1999. Corus is to act as operator of the project;
Macsteel International Holdings, a joint venture between the Macsteel Group and Iscor Ltd of South Africa. Macsteel has contracted to purchase the entire steel output from Austeel;

Thiess, one of the largest integrated engineering service providers in Australasia. Thiess is to develop and operate the mine in the Pilbara;

Lurgi, a world leader in process engineering and plant construction. Lurgi is to design and build the processing plant in the Pilbara;

Danieli, a major European industrial plant builder and steel maker. Danieli is to construct Austeel's steel plant in New South Wales;

Andhika Group, an integrated marine services operator. Andhika is to manage and operate port facilities at Cape Preston; and

Clough Engineering, one of Australia's largest multidisciplinary engineering and construction companies. Clough is to develop a new port and associated onshore infrastructure facilities for the project in Western Australia.

Austeel's processing plant will receive gas from Western Australia's North West Shelf for use in power generation and in the process of reduction of the iron ore concentrate. Reduction is the process by which the oxygen is removed from the iron ore - which is an iron oxide - to leave pure iron. Five of the six North West Shelf venture partners hold convertible notes which will convert into Austeel shares upon the listing of such shares on the Australian Stock Exchange. The Austeel proposal is a very large-scale project offering significant potential benefits for the Western Australian community. For the total Austeel development up to 5 000 people will be employed at the peak of the construction phase in Western Australia and up to 1 050 permanent direct Western Australian jobs will be created. The value of new investment in the Pilbara is estimated at $3 billion.
I now turn my attention to particular provisions of the agreement scheduled to the Bill before the House. The eight parties to the agreement are the State of Western Australia, Mineralogy Pty Ltd, and six co-proponent companies: Austeel Pty Ltd, Balmoral Iron Pty Ltd, Bellswater Pty Ltd, Brunei Steel Pty Ltd, International Minerals Pty Ltd, and Korean Steel Pty Ltd. Mineralogy, the principal of which is Mr Clive Palmer, is a private company registered in Queensland. The six co-proponent companies are wholly owned subsidiaries of Mineralogy. Mineralogy is always a party to any development proposed under the agreement. The co-proponent companies have been formed to pursue specific projects, and may have involvement in one or more projects. The co-proponent companies are the vehicles for other entrants into a project. Only Austeel Pty Ltd, to date, has been identified with potential project investment participants. These include Thiess, Lurgi, Danieli, Andhika Group and five of the North West Shelf venture partners.
Clause 1 defines terms used throughout the agreement and clause 2 provides legal interpretations of how the agreement is to be generally read. Clause 3 requires the State to introduce and sponsor a Bill into Parliament to ratify the agreement. Pending ratification, the State is to allow Mineralogy and co-proponents to enter crown land to undertake studies to progress a development under the agreement, subject to protection of the environment and sites of Aboriginal

Clause 4 states that the agreement, other than the first four clauses, shall not operate until the ratification Bill is passed and comes into operation as an Act. It further provides for the cessation and determination of the agreement if the Bill has not commenced to operate as an Act by 30 June 2002 or such later date as may be agreed. Clause 5 deals with the initial obligations of Mineralogy. Mineralogy is required to keep the State informed of the studies it undertakes for the purposes of preparing initial project development proposals. The reports are to advise the expected Western Australian and Australian content of each project proposed. Mineralogy is required to cooperate and consult with the State with respect to any relevant studies, and to join with the State in infrastructure studies which both the company and the State agree should be undertaken.

The next three clauses of the agreement deal with project development proposals. Clause 6 relates to the proponents submitting detailed development proposals to me for approval. Proposals for at least one project must be submitted prior to 30 June 2003. The initial project must be substantial, with production of at least two million tonnes a year of steel or direct reduced iron or six million tonnes a year in the case of a lesser processed pellet project. The details to be submitted are enumerated and, in addition to describing all plant and services required for a project development, include identification of the use of local services, suppliers, materials and contractors. Provision is made for the proponent to consult with me on reasons for foreign content supplies. The agreement envisages projects to be developed in the Fortescue - Cape Preston region. However, under the definition of "plant areas", provision is made for plant to be located elsewhere within the Pilbara, if agreed between Mineralogy and me. The proposals need to define all tenures to land required for a project. The clause allows for use of existing infrastructure and for other industrial parties to have access to Cape Preston and land nearby. At the time of submission of proposals, the proponents must demonstrate to my satisfaction the availability of finance and their readiness to proceed if my approval is given. However, if the financial support of an export credit agency is sought, in order to allow the time required for this facility to be put in place, an extension of time of up to 18 months is allowed for submission of this information. In those circumstances, I may consider and approve the proposal subject to later receipt of confirmation of the availability of finance and the readiness of the proponents to proceed.

Clause 7 relates to the procedures that have to be followed in my consideration of the proposals. Upon receipt of proposals, I may, subject to compliance with the requirements of the Environmental Protection Act 1986 and laws relating to native title, approve the proposals wholly or in part; defer a decision until such time as the proponents submit further proposals; or require a condition precedent be satisfied before approval. Within two months of their submission, the proponents are to be notified of my decision in respect of the proposals. If I do not approve the proposals, there is a procedure by which the agreement can ultimately be terminated. Arbitration provisions apply to my decisions on the proposals. Members should note that, once proposals have been approved, the proponents are obliged to implement them. Clause 8 enables the proponents, at some future date, to submit additional proposals, on the same basis as clauses 6 and 7, if they wish to significantly alter or expand their activities from the proposals that have already been approved.

I now move to clause 9, which deals with mining tenure. As a result of the long period of negotiation of the draft, the agreement involves complex arrangements for the holding of mining tenure. The tenement areas have been split into three groups - areas A, B1 and B2. Area A covers the area of Fortescue and Cape Preston and would satisfy requirements for any projects and related infrastructure envisaged for development in the short to medium term. Areas B1 and B2 contain iron ore formations which are seen to have long-term exploration and development potential. The provisions cover:

reinstatement to Mineralogy of tenure subject to this agreement that was previously held by the company and lapsed during the period of negotiation of the agreement; and
modification of Mining Act terms and conditions in relation to lease rental, assignment, surrender and expenditure requirements. Most of these modifications are standard for state agreements to allow efforts to be concentrated on the initial development area, while at the same time providing security of tenure over all areas for the longer term.

I refer to one provision in respect of existing mining leases within area A. This provides for a refund from the State to Mineralogy of excess rent paid before the commencement date of the agreement. The arrangements that give rise to this refund were agreed during negotiations in 1995. To allow for some degree of rental equity with other iron ore agreement Act projects, the retention licence rental rate will apply from 1993 to 5 December 2001 and the exploration licence rental rate will apply from 5 December 2001 to 31 December 2001. Mineralogy has paid full mining lease rental rates since 1993, therefore a refund is due. The refund, which has accumulated since 1993 to approximately $600 000, is to be paid after 30 June 2002. The later subclauses of clause 9 largely provide flexibility to transfer areas between development tenure - that is area A - and further exploration tenure as held in areas B1, B2, and areas held under standard Mining Act tenure. The subclauses also restrict the maximum area within mining leases to 777 square kilometres and give two 21-year renewals. Both of these provisions are standard for iron ore agreements.
As just mentioned, there are existing mining titles that were granted during the long period of evaluation of the Fortescue deposits. Under clause 10, provision is made for the grant of additional mining leases, if required, pursuant to

Clause 11 relates to royalties. The royalty rate is linked to the first saleable product from the process cycle, namely, magnetite iron ore concentrate. The current standard Mining Act royalty rate of five per cent ad valorem is applied and fixed for the first 14 years. Thereafter the prescribed Mining Act rate at the time will apply. The fixing of the royalty rate has become standard in the more recent state agreements. The purpose of fixing the rate is to give certainty to the proponents during the early years of operation. As development proposals under this agreement require all products to be further processed, either to pellets or further to iron and/or steel, a deemed or imputed value for the concentrate will be used. This is the average free on board ship sales price to Japan based on a range of existing high-grade fine ores produced in the Pilbara. This is a fair and reasonable basis for royalties to be applied.

In accordance with the decision made by Cabinet on 15 January 1996, standard concessions on royalty rates are allowed to the proponents. That provides for a rate reduction as an incentive for further processing. The amount of the concession is 0.5 per cent for processing into high-grade pellets, one per cent for processing into direct reduced iron and two per cent for processing into steel. This means that the royalty payable on high-grade pellets is 4.5 per cent of the imputed value of the concentrate, and for direct reduced iron the royalty is four per cent. For the integrated Austeel steel project, because direct reduced iron is the product to be shipped from Western Australia, the royalty rate of four per cent will apply. Standard provisions for inspection, monitoring and quarterly royalty payments are built into the agreement.

Clause 12 deals with issues related to the use of local labour, professional services and materials. Once development proposals are submitted, the proponents must submit reports to me, as minister, on a monthly basis on the implementation of the local content requirements. I intend to ensure that, wherever feasible, local labour and services are used. The normal state agreement requirement is that the developer and any subcontractor or third party shall use local labour where practicable; use local professional services when reasonable and economically practicable; give local suppliers and contractors fair and reasonable opportunity to quote; give preference to local businesses offering equal or better value; and seek to achieve Australian participation in any overseas purchases. These provisions have been modified to allow me, as minister, to exempt these requirements at my discretion. The circumstances in which an exemption may be required exist for the Austeel project. In this case at least two of the equity participants in the project are major overseas equipment manufacturers and the project is relying on securing export credit finance for equipment manufactured by these companies overseas. In such circumstances the companies will be required to abide by the principles of the State's local content policy, as far as is reasonably practicable.

Clause 13 details the State's and the proponents' rights and obligations to the construction, maintenance and upgrading of both private and public roads. The State has responsibility to maintain public roads to a suitable standard, and the proponents will pay for any upgrades to public roads required to implement the projects under the agreement. Clause 14 allows the proponents to install and operate electricity generation equipment and transmit electricity for the projects under this agreement, in accordance with the approved proposals. Clause 15 records that Mineralogy and co-proponents propose to provide for their water requirements by desalination of seawater. The State is relieved of any obligation to provide water. The proponents are to be responsible for the cost of construction and maintenance of their water supply. Clause 16 requires the proponents to keep me advised of water requirements that cannot be obtained by desalination. The Water Corporation or other parties may enter into arrangements with proponents to supply or give access to potable water, subject to its availability.
The next three clauses relate to work force housing and accommodation. Clause 17 requires Mineralogy to confer with the relevant local authorities and me before submitting project proposals, with a view to ensuring appropriate planning is made for housing and accommodation. Clause 18 relates to the provision of accommodation on the mining leases. The project proponents may, at their own cost, provide work force accommodation on the mining leases, provided it meets generally accepted mining industry standards. Only persons directly involved in a project may reside in the mining lease accommodation and the accommodation must be removed when no longer in use. Project proponents must seek the minister's consent for any upgrading, replacement, relocation or new mining lease accommodation. Clause 19 deals with the provision of accommodation outside mining leases. Project proponents may provide

Although there are no proposals for it at this time, the agreement makes provision for the establishment, by Mineralogy and its co-proponents at their cost, of one new town in the Pilbara. If Mineralogy and its co-proponents wish to propose a new town, they must notify the minister of their proposal and agree with the minister on a location for the town within the Pilbara. If the minister approves the submission of detailed proposals for a new town, the agreement sets out the matters to be covered in the proposals. If establishment of the town is approved, the State is required to grant leasehold land for the purpose. Mineralogy and its co-proponents are to pay the capital cost and reasonable charges for state-provided services in the town, other than the operational costs of educational, medical or police services.

I point out to the House that the State's preference is to utilise and support existing towns in the Pilbara and I will take this position into account if at any time Mineralogy and its co-proponents propose the establishment of a new town. I also advise the House that, in the case of the Austeel project, no new town is proposed. The Austeel proposals include a combination of mining industry standard accommodation on the mining leases and permanent housing in Karratha.

Clause 20 is another relatively complex clause that deals with the land requirements for projects under the agreement, and also deals with arrangements should a project not proceed as approved or if the agreement is determined. I hope the latter provisions will not be used, but they give some level of security to all parties should such an eventuality arise. The State is required to grant to project proponents, in accordance with approved proposals and subject to specified conditions, leases, licences, easements and other appropriate tenure required for the purposes of the project. These titles will be for terms commensurate with the needs, up to the term of the primary mining titles for a project and, in the case of plant areas, not exceeding 60 years. In the event that the projects do not proceed, or do not proceed as approved or, for various reasons, the agreement being determined, then a number of provisions apply to termination of titles. These arrangements are considered equitable between the parties and ensure that any granted titles that are not being used or required are terminated with adequate notice.

Clause 20 also provides 12 months security over certain areas whereby titles have either terminated or development proposals have not been accepted. In the first instance, Mineralogy may be granted a one-year exploration licence over strategic areas covering Cape Preston and infrastructure corridors to the mine, plant and port. In the second case, the project proponents will be allowed the 12-month period to bring forward an alternative development plan. The clause also modifies the Land Administration Act for the purpose of giving priority and fast tracking the grant of tenure to the proponents. The last part of clause 20 deems Mineralogy as the landowner for the purposes of section 18 of the Aboriginal Heritage Act. Section 18 of the Aboriginal Heritage Act deals with consents to disturb Aboriginal sites.

Clause 21 relates to port facilities, which are to be constructed, operated and maintained in accordance with the approved proposals and relevant legislation. Mineralogy is required to allow third parties to use the port facilities at reasonable charges, provided this does not unduly interfere with Mineralogy's or the project proponents' operations. The clause also enables the minister to make by-laws for third-party use of the port facilities.

Clause 22 allows Mineralogy to construct and operate a railway if this is part of an approved proposal. The railway must be built and operated to appropriate standards, and Mineralogy is required to provide for third party carriage of iron ore, passengers and other freight. Under the current plans for the Austeel project, there is no requirement for rail facilities. Clause 25 relates to the rating of land. As per the standard in agreements and for Mining Act titles, project land will be rated at unimproved value, except for accommodation and commercial facilities not directly part of a project. In such cases improved value Local Government Act ratings shall apply. Clause 27 enables the State to resume land that is necessary for the purposes of this agreement, but any resumption will be at the expense of the proponents.
Clause 28 ensures that this agreement takes precedence over the subsidiary agreements between Mineralogy and the co-proponents. The clause also provides for up-front approval of any assignments that are contained in the subsidiary agreements and have been advised to the State before the agreement is executed. I advise the House that all the subsidiary agreements listed in the first schedule were reviewed by the Crown Solicitor's Office prior to execution of the agreement. Clause 29 requires Mineralogy to warrant to the State that it has reached agreement with project proponents on the use of infrastructure and lands controlled by Mineralogy. Clause 30 provides that the State shall not resume or allow to be resumed any of the property or equipment belonging to the proponents which is used for the purposes of the agreement. This normal provision in state agreements has been modified so that, in the eastern part of Cape Preston and the infrastructure corridor areas where land has been set aside for third party access, the State may create easements provided these do not affect project proponents or their contractors. Clause 36 details the effect of determination of the agreement. The agreement may be determined in respect of all projects under the agreement or determination may occur only in respect of one project when more than one project is in operation or consideration under the agreement. In either case any leases, licences, easements or other titles related to determined projects shall continue in force under the Mining Act or Land Administration Act as appropriate. Clause 37 ensures that this agreement does not override commonwealth legislation or the Environmental Protection Act 1986. All development proposals under this agreement are subject to the Environmental Protection Act requirements being satisfied.

The majority of the remaining clauses are mostly procedural in nature and are standard to modern state agreements. These clauses deal with the following issues: training levy exemption; zoning; no discriminatory rates; assignment; variation to the agreement; force majeure; power to extend periods; determination of the agreement; indemnity; commonwealth licences and consents; subcontracting; arbitration; consultation; notices; and applicable law being the law of the State of Western Australia.

I bring to the attention of the House two remaining clauses. Clause 41 is the stamp duty clause. The agreement provides for limited stamp duty exemption on specific instruments for a period of three years. Additionally, any stamp duty already paid before the commencement date on an exempted document or instrument will be refunded. This is a standard concession in state agreements that encourages the establishment of a consortium to finance the initial project development. Clause 45 relates to the term of the agreement. The agreement will operate for up to 60 years from the date of ratification. Any Land Administration Act tenures associated with projects under the agreement are also up to 60 years or conterminous with the relevant project mining lease or leases. Mining Act tenure for projects would give 63 years, through two automatic renewals of term during the currency of the agreement. It should be noted that provision exists for the parties to meet in the fiftieth year after the commencement of the agreement, to consider whether the term of the agreement should be extended.

Two plans and two schedules are attached to the agreement. Plan one comprises three sheets and shows the areas of land and associated mining titles covered by the agreement. Plan two shows the area of land near Cape Preston, within the land covered by the agreement, that is identified for third party users. The first schedule lists the subsidiary agreements that I have mentioned. The purpose of the subsidiary agreements is to outline the conditions under which Mineralogy, as tenement holder, will sublease areas to the project proponents and set terms and conditions for access to common use facilities across projects contemplated in this agreement, such as the transport corridor and the port. The agreement is not dependent on, and takes precedence over, the subsidiary agreements. Any assignment or subleasing does not override any liabilities under the agreement by Mineralogy and the co-proponents of a project. Now that the agreement has been signed, state approval under the assignment clause will be required for any future assignments or subleases. The second schedule sets out the agreed form of mining lease to be granted pursuant to clause 10.

In conclusion, this agreement provides for the mining and processing of magnetite iron ore in the Pilbara. Although low-grade magnetite ore is used for iron and steel production in many countries, the use of this type of iron ore, as envisaged under this agreement, will be a first for Western Australia. The State has entered into this agreement in order to facilitate the development of these resources. The Austeel project that is already proposed for development under this agreement represents a major investment in minerals processing in Western Australia. Apart from the employment and financial benefits for our community, the project increases the potential to achieve further downstream processing in Western Australia in the future. The agreement places no obligation on the State for contribution to infrastructure to support projects developed under the agreement. The Iron Ore Processing (Mineralogy Pty Ltd) Agreement provides a framework for a number of projects to be developed over time. I look forward to receiving, in due course, detailed final proposals, including confirmation of the commitment of investors, for the Austeel project and any future proposals under this agreement. I commend the Bill to the House.

Debate adjourned, on motion by Mr Edwards.