State-owned electricity generator Verve Energy has been selected to supply electricity to Gindalbie Metals' Karara iron ore poject, making it the winner of Western Australia's biggest contested electricity contract in more than a year.
State-owned electricity generator Verve Energy has been selected to supply electricity to Gindalbie Metals' Karara iron ore poject, making it the winner of Western Australia's biggest contested electricity contract in more than a year.
Verve will supply one million megawatt hours per annum over a 15-year period, which is equivalent to the output from a 100 megawatt power station.
The agreement adds to the likelihood that Western Power will proceed with construction of a new transmission line to the Mid West, which will be needed to link Verve's power stations with the the Karara project.
Verve's main competitor for the Karara contract was understood to be Rick Stowe's Griffin Group, which is developing the Bluewaters coal-fired power station at Collie.
Griffin won a competitive tender last year to supply 150MW of power to the Boddington gold mine and is believed to be in negotiations with state-owned energy retailer Synergy to supply up to 400MW of baseload power.
The limited supply of gas in the state's South West, and its sharply incressed cost, means that Griffin is the only generator capable of supplying such a large volume of electricity to Synergy.
Synergy spokesman Andrew Gaspar said the company was "confident of making a decision by the end of the year".
The power supply contract is another major milestone for Gindalbie's Karara project, which will cost $1.8 billion to develop and is due to commence production in early 2010.
Verve managing director Shirley In't Veld welcomed the agreement as a landmark for the company and described it as an example of WA's new robust electricity market at work.
"This mutually beneficial contract will deliver significant benefits for Verve Energy, the MidWest community and for the State of Western Australia," she said.
"The agreement with Karara Energy demonstrates that Verve Energy is well placed to meet the long-term energy needs of iron ore projects in the MidWest region.
Gindalbie's decision indicates that Verve is still able to compete with private sector generators despite it being weighed down by vesting contracts with Synergy, which are losing it money.
It also indicates that the 3,000MW cap imposed on Verve by the state government - which was meant to ensure that new generators could enter the deregulated market - has not stopped it winning new contracts.
Verve spokesman Peter Winner said it would be closing two generating units at Kwinana next August, which would bring it under the 3,000MW cap, and would close two further units in 2010.
Mr Winner said Verve's competitive position would also be helped by the commencement of new coal supply contracts wth Wesfarmers' subsidiary Premier Coal, which in future will be the only coal supplier.
Griffin Group currently supplies coal but in future its coal will be used in its own power stations.
A Gindalbie statement is pasted below:
Gindalbie Metals Ltd (ASX: GBG) is pleased to announce that its subsidiary, Karara Energy Pty Ltd, has finalized a long-term power purchase contract with Western Australian electricity utility, Verve Energy, which will underpin the supply of power to the Karara Iron Ore Project in Western Australia's Mid West region.
The Western Australian Minister for Energy, the Hon Fran Logan, has granted Ministerial Approval for the contract, which represents a key ingredient in the development and future operation of the Karara Project. The Project is being developed through a Joint Venture company (Karara Joint Venture) owned equally by Gindalbie and leading Chinese iron and steel company, AnSteel.
The contract provides price certainty for the consumption of up to about one million megawatt-hours (MWh) per annum of base load power over an initial 15-year period. This is sufficient to meet the power requirements of the Karara Iron Ore Project.
Karara Energy is registered with Western Australia's Independent Market Operator. It will operate as a retailer in the Western Australian power market, with its foundation customer being the Karara Joint Venture. A separate agreement is in place between Karara Energy and the Karara Joint Venture to source power for the Karara Project.
Commenting on the announcement, Gindalbie's Managing Director, Mr Garret Dixon, said: "The finalisation of this contract between Karara Energy and Verve Energy represents a further important milestone in the development of the Mid-West's iron ore resources. It locks in a secure and reliable long-term source of power, which will underpin the Karara Iron Ore Project."
"Power is one of the Project's largest operating costs," Mr Dixon continued. "The Gindalbie Board and our Joint Venture partner, AnSteel, are convinced that this power supply agreement with Karara Energy represents by far the best option for this project and delivers significant benefits over the long term. We now have sufficient power at agreed prices for a 15-year period, which gives us a vital cornerstone to proceed with the Project's development."
Verve Energy's MD, Shirley In't Veld, said: "We welcome the completion of this mutually beneficial contract, which will deliver significant benefits for Verve Energy, the Mid-West community and for the State of Western Australia. At the same time, it will underpin the provision of a source of long-term and reliable power to assist in the development of the Mid West region's resources."
Mr Dixon said the Karara Joint Venture was pleased to be working collaboratively with the Western Australian Government in the development of new infrastructure for the Mid-West region.
"The establishment of Karara Energy and the agreement to source power from Verve Energy will guarantee a baseload customer to underpin the new power infrastructure required to service the many projects already underway in the Mid-West region," he continued. Karara Energy is also working closely with Western Power, to secure the transmission infrastructure which will support the Project."
"Our agreement with Verve and the good relationship we have with the Western Australian Government will play a big part in unlocking the value of the Mid-West's mineral resources".
Gindalbie and AnSteel recently completed a Bankable Feasibility Study (BFS) for the Karara Iron Ore Project, which includes the mining and processing of the 1.43 billion tonne Karara magnetite deposit and mining and transportation of the 27.1 million tonne Mungada Hematite resource. The power supply contract secures a key input to the Karara Iron Ore Project which has an initial production profile of 8mt/annum of high-grade concentrate and pellets together with 3mt/annum of hematite lump and fines.
Upon completion of the BFS, Ansteel and Gindalbie signed the Karara Joint Development Agreement in Sydney in the presence of the President of The Peoples Republic of China, Mr Hu Jintao and the Prime Minister of Australia, Mr John Howard on 6 September 2007. The Agreement provides the framework upon which the Karara Iron Ore Project will be developed.
