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YIPA Inc Yilgarn Iron Producers Association Inc PO Box 3047 Broadway Post Office Crawley, West Australia 6009 ESPERANCE PORT UPGRADE SIGNALS MAJOR BOOST to WA ECONOMY Independent Economic Impact Study confirms major benefits to State’s economy during construction and subsequent operational phases of a modestly priced and commercially viable 10 Million tonne per annum port upgrade and associated Yilgarn iron ore mining activity. The list of benefits to WA include: State Government royalty receipts of $95m per annum, given global iron ore prices of US$120 per tonne at the present exchange rate. Employment for up to 1,000 workers during construction phase, which may generate employment for a further 3,227 workers throughout the economy during construction phase Yearly direct employment for up to 360 people during mine operation, which could create almost 1,170 full-time equivalent (FTE) jobs elsewhere in the economy. A direct investment boost to the WA economy from mine and port construction worth up to $550m initially, with an expected $641m flow-on effect to industry output to meet this initial growth in demand during construction. An annual direct boost to demand in the WA economy during mine operation of up to $540m, and an additional yearly flow-on effect to industry output during mine operation of $627m in order to meet the initial demand growth. Direct wages of around $131m during mine construction and $46m per annum during mine operation. Indirect wage benefits worth up to $122m per annum across the economy during operation phase, and nearly $350m during construction phase from jobs expected to be created elsewhere in the economy. State Government payroll tax payments of up to $2.5m per annum during operational phase and $7.2m during construction phase. Goldfields/Esperance set for major boost to local economy Modestly priced (under $200 million) Esperance Port upgrade (stage one) of about 10 million tonnes per annum (Mtpa) supported by Aecom Engineering and Financial Studies Solid case for Government to underwrite port expansion with only two years of Royalties paying off the debt January 2013 Perth WA. The results of the Yilgarn Iron Producers Association (YIPA) commissioned, Esperance Port upgrade Economic Impact Study reveals a large boost to the WA economy. The independent study was undertaken by AECOM, international engineering house Mining of an additional 10 Mtpa in the Yilgarn Iron Province (YIP) will boost State coffers with Royalty payments of $95 million per annum - assuming an iron ore price of $120 per ton. 1 Yilgarn Iron Producers Association Inc - www.yipa.com.au The above are conservative estimates as direct operating costs and employment at the expanded port facility, as well as potential investment in rail and rolling stock are NOT included. WA and the Goldfields-Esperance region will experience a jobs bonanza that frees the local economy from the turbulence of gold and nickel price cycles. During the construction phase, the new wave of iron ore mining and export is set to deliver 1,000 direct full-time equivalent jobs (FTE) jobs, with a further 3,227 indirect workers throughout the economy, totalling 4,227 during the mine construction phase. And the even better news is that permanent jobs will receive a solid boost, with mine operations delivering 360 direct jobs, with 1,170 FTE jobs elsewhere in the economy, totalling 1,530 This study provides yet further evidence that an Esperance Port upgrade is essential to boosting output from the Yilgarn Iron Province through relatively low capital expenditure to achieve a sustainable and affordable new export facility. The Economic Impact Study draws together three major Studies carried out by Aecom, which support a modest Esperance Port Stage One Upgrade as the way forward. 1. Supply Chain Study (completed October 2012) Examined rail and port infrastructure and concludes a modestly priced (under $200 million) Esperance Port upgrade (stage one) of about 10 million tonnes per annum (Mtpa) capacity is the way forward. 2. Esperance Port Financial Study (completed December 2012) The Financial Study modelled key parameters including: capital intensity, return on investment, period of investment, tonnage and tariff structure and rates. Echoing the findings of YIPA’s October Supply Chain Study, the new Financial Study's results suggest that a low capital (sub $200m) and incremental upgrading of infrastructure can be used to cater for the stage one export of 10 Mtpa DSO material through Esperance Port. 3. Economic Impacts Study (Completed January 2013) concludes over 4,000 jobs to be created and big Royalty flow to the State. YIPA chairman and Radar Iron managing director Jon Lea said: “The additional 10 Mtpa mining capacity and an upgraded port to export this will be a major boost to the Goldfields Esperance economy and WA.” “$95 million in Royalties to the state government will flow as well as significant jobs during construction and operational phases,” he said “We now have further evidence that a modestly priced (under $200 million) Esperance Port upgrade (stage one for DSO) of about 10 million tonnes per annum (Mtpa) capacity is the way forward. This project must be fast tracked and the workers and people of WA will be the winners, Mr Lea said. “Strong infrastructure provider interest also supports the modest upgrade option”. The modest upgrade includes a new 750,000 tonne storage shed, twin car rail dumper, ship loader upgrade and ancillary conveyors and rail within the Port. This Study, once again has the unusual situation where WA miners are lining up to co- operate closely with each other to facilitate Yilgarn to Esperance infrastructure upgrades. 2 Yilgarn Iron Producers Association Inc - www.yipa.com.au Yilgarn Iron Producers Association members Mindax Ltd, Radar Iron Ltd, Legacy Iron Ore Ltd, Golden West Resources Ltd, Mineral Resources Ltd (MRL), Cazaly Resources Ltd and Cliffs Natural Resources (Cliffs) awarded the contract to Aecom with the study being completed this month. Cliffs Natural Resources already export approximately 11 Mtpa through Esperance and Mineral Resources are building up to 4 Mtpa through Kwinana, with more proposed for Esperance. In November, the Yilgarn Iron Producers Association welcomed Brookfield Infrastructure Group Australia (Brookfield) and Qube Holdings (Qube), entering into a Memorandum of Understanding to jointly pursue the proposed development of the Multi User Iron Ore Facility (MUIOF) at Esperance. Detailed discussions between YIPA members and infrastructure providers are continuing. YIPA members are individually involved in EPSL’s (Esperance Port Sea and Land) current market sounding process for a new multi-user iron ore facility and believe that the Study findings will provide a valuable contribution to this exercise A stage two upgrade, focussed on magnetite, would require the construction of a second berth, and could boost the total port potential above 50 Mtpa - this could be reached over time through a number of environmentally sound sequential expansions. About YIPA The Yilgarn Iron Province has a JORC of 785 Mt tonnes of DSO and CET of 1.1 Billion tonnes of DSO (JORC of 4.7 Billion tonnes of Magnetite and CET of 14.5 Billion tonnes of Magnetite). YIPA is approaching three years old and has a strong track record of working together with government and industry to boost the infrastructure capabilities of the Yilgarn Iron Province. Ten miners are currently members. www.yipa.com.au Detailed Economic Impacts and Notes This study aims to estimate the direct and ‘flow-on’ economic impacts likely to be associated with the development and export of an additional 10 million tonnes per annum (Mtpa) of iron ore through Port of Esperance to service the nascent iron ore sector in the Yilgarn region of Western Australia (WA). Although there are many iron ore developments under consideration in the Yilgarn region, this study does not make an assumption in relation to which of these will be developed. Rather, the study adopts a first principles approach to estimating the expected economic impacts by estimating the generic construction costs of ‘typical’ mine/s in the region of up to 10 Mtpa in capacity Overall, the direct economic impact from the construction phase of the port expansion and mine construction phases could yield up to $558m to WA economic output, which in turn could generate a flow-on effect of approximately $649m in industry output to meet that initial demand growth. Furthermore, an estimated 1,000-strong workforce earning wages of $131m from the construction phase could be expected to generate a further $349m in wage income across WA industry sectors, and create almost 3,300 FTE jobs elsewhere in the economy. 3 Yilgarn Iron Producers Association Inc - www.yipa.com.au Additionally, the on-going benefits from the operational phase of the mine/s could directly add up to $637m per annum to WA output with a further flow-on effect of around $741m in industry output to meet that initial demand growth. Around $46m in wage income may be directly generated every year from the operation phase, yielding further wages worth around $122m per annum across industry sectors and around 1,170 jobs elsewhere in the economy (Table 1 summaries these estimated impacts). Importantly, direct operating costs and employment at the expanded port facility, as well as potential investment in rail and rolling stock cannot be accurately determined at this time and are therefore excluded from the study. This results in a more conservative estimate of the value of potential economic impacts. Table 1 Total Estimated Economic Impacts from Construction and Operational Phases Economic Impact Output Effects ($m) Wage Income Effects ($m) Employment Effects (FTE) Construction Impacts Direct Impact $558 $131 1,000 Flow-On Impact $649 $349 3,227 $1,207 $481 4,227 Total Impact Annual Operational Impacts Direct Impact $637 $46 363 Flow-On Impact $741 $122 1,170 $1,378 $168 1,533 Total Impact Estimated economic impacts should be taken as only indicative of the likely benefits to accrue from the development and should not be used for investment decisions. Media David Utting YIPA CEO 0416 189 462 [email protected] 4 Yilgarn Iron Producers Association Inc - www.yipa.com.au