Iron ore price dip `to hit WA royalties`

A sharp fall in iron ore prices is expected to slash Western Australia's royalties
in 2009/10.
WA treasurer Troy Buswell on Thursday handed down his first budget since the Colin
Barnett-led Liberal Party came to power last year.
Mr Buswell predicted a 30 per cent plunge in iron ore prices and softer prices for
other commodities in the new financial year.
Royalty income in 2008/09 is estimated to have grown by 59 per cent, mainly due to
an 85 per cent hike in iron ore contract prices for most of the period.
For the remainder of this year, however, royalties are tipped to decline by $362
million, largely reflecting the impact of an assumed fall in iron ore prices
combined with lower production volumes and a higher Australian dollar exchange rate
against the US dollar.
Annual contract, or benchmark, iron ore price negotiations are based around the
Japanese financial year, which began on April 1, but current talks are continuing
and should be resolved by mid-year.
Analysts say the iron ore price decline could be between 25 and 40 per cent.
WA's royalty income is expected to fall by 3.7 per cent in 2009/10 due to the iron
ore price dip, which will more than counter a continued expansion in the state's
iron ore output and a modest improvement in other commodity prices.
In the outyears, however, royalty income is projected to grow at 3.7 per cent,
largely due to greater iron ore production volumes.
Mr Buswell also announced a record $8.3 billion in spending on infrastructure in
2009/10 or $23.8 billion over four years.
Of this years' spend, $377 million has been allocated to expanding ports at
Fremantle and at the iron ore export hub of Port Hedland.
The new multi-user facility under development at Utah Point at Port Hedland will be
used by the growing mid-tier and junior iron ore sector, which will also benefit
from the proposed $4 billion Oakajee port near Geraldton.
While both the federal and state governments have each committed $339 million
towards Oakajee, no funds have been allocated toward the project in the WA 2009/10
budget.
It is understood the WA government remains committed to supporting Oakajee and is
considering when to make its financial contribution.
Association of Mining and Exploration Companies chief executive Simon Bennison told
AAP that he assumed "it is going to come in next year's forward estimates in some
shape or form".
"I think they were waiting for the announcement from the feds for their $339 million
commitment," Mr Bennison said.
"Now the feds have said they will put that towards Oakajee, the state government is
now going to have to work back and see where it is going to get its matching dollars
from."
The state government has also not earmarked any funds in 2009/10 for a liquefied
natural gas (LNG) processing hub at James Price Point near Broome or Chevron's
Gorgon LNG project on Barrow Island.
However, Mr Buswell said $35 million will be put towards a service and supply base
at the Australia Marine Complex near Fremantle, which trains companies that support
the oil and gas sector, "to initially meet the needs of the Gorgon project".
The WA government expects an operating surplus of $647 million this financial year,
down from $2.5 billion in 2007/08.
An operating surplus of $409 million is projected for the forthcoming fiscal year
but the state's balance sheet will go into the red by $513 million in 2011/12.