Mitsubishi’s $6.7 billion Oakajee project scuppered by costs blowout and Chinese demurral

Mitsubishi’s AUD$6.7 billion Oakajee port and rail project in Western Australia has been put on hold as the company cuts costs in the face of adverse economic conditions and struggles to obtain Chinese investment support.

The Brisbane Times reports that Mitsubishi, Japan’s largest trading house, announced a significant scaling down of the project’s budget and staff numbers, as well as temporary suspension of the project until more capital can be obtained.

Development of the port, slated to service the Mid West and Yilgarn iron ore region, has been hampered by a blow out in costs which has seen its total price tag rise from $4.4 billion to $6.7 billion, as well as unsteady ore prices this year as China’s growth eases yet the Middle Kingdom’s domestic mines continue to ramp up production.

Australian Mining says one of the key issues undermining the project has been the inability of Mitsubishi to obtain the support of Chinese investors due to growing tensions between the two countries over a protracted spat involving sovereign territory in the South China Sea.

“Recent tension between Japan and China have slowed talks with potential Chinese partners,” said Mitsubishi.

Mitsubishi’s coal developments down under are also facing uncertainty, with Fairfax citing company president Ken Kobayashi as saying it would be “hard for the company to break even” at its Australian coking coal joint venture even given current coal prices, and that mines could be closed to improve on costs.

The joint venture between BHP Billiton (ASX:BHP) and Mitsubishi is the world’s biggest coking coal producer and was a major cash cow for the venerable Japanese conglomerate last year.