Boston, MA 09/12/2014 (wallstreetpr) – POSCO (ADR) (NYSE:PKX) and China’s Baosteel agreed to develop the five-year on-hold projects in Western Australia. The companies push ahead with their plans to set up $7 billion iron ore projects despite low market price of the iron ore.
New agreement
According to the plan, POSCO (ADR) (NYSE:PKX) along with American Metals & Coal International (AMCI) will support the railroad and port infrastructure projects by Australia’s Aurizon Holdings Ltd and Baosteel.
POSCO, AMCI and Baosteel together provided the exclusive rights to Aurizon to develop the port and railroad network for West Pilbara iron ore. As per the new agreement, the port and railroad will handle a capacity of 40 million metric ton of iron-ore per year compared to the original plan of 30 million metric ton of iron-ore per year. Aurizon expects to deliver the initial tariff by October 2015.
Long-term benefits
POSCO representative in Australia said that POSCO (ADR) (NYSE:PKX) is looking for junior miners that have a built-in infrastructure for long-term growth. Therefore, the Korean giant believes that the agreement will initiate the pending projects, which has long-term benefits even at a low-price of iron-ore ($90 per metric ton).
The fluctuation in iron-ore price creates problem for small miners, but the competitiveness of the projects will remain there according to the spokesperson of the Baosteel.
However, investors are doubtful about the projects how the Asian steelmaker agree to put the money on new iron-ore projects and how it will proceed if the price of the iron-ore remains flat, as per BoAML’s analyst, Matthew Spence.
Aurizon’s spokesman, Mark Hairsine accepted the fact that the projects have some commercial issues, but POSCO (ADR) (NYSE:PKX) is confident to generate long-term benefit due to the support from the global partners like POSCO.
At the same time, billionaire Gina Rinehart also supported the Korean giant to set up another $10 billion project, a low-cost mine with own port and railroad, in the same region in 2015.
POSCO (ADR) (NYSE:PKX) perhaps sees some future prospect while investing in collaboration with low-cost iron-ore mines.
