Iron ore producers jostle for rail

Slow train coming: Only two of the four private rail lines are open access

The smattering of new iron ore entrants hoping to emulate Andrew Forrest and the success of his Fortescue Metals Group in Western Australia have benefited from an Australian Competition Tribunal decision that provides partial access to privately owned iron ore rail lines in the iron ore-rich Pilbara region.

The lines are owned by the region’s two dominant producers, BHP Billiton and Rio Tinto, but only two of the four lines have been declared open access.

For BHP the Goldsworthy line was declared open access but not the Newman line, while for Rio the Robe River line was declared open access but not its Hamersley line.

The winners are Giralia Resources, Atlas Iron and Aquila Resources as the companies have projects that could benefit from being able to transport ore on the railway lines.

Giralia is undertaking a study on the viability of trucking ore from its McPhee Creek deposit 220 kilometres to Port Hedland, but a more attractive option may be to build a 150km rail spur to join up to BHP’s Goldsworthy line.

In addition to the rail spur, Giralia would also have to purchase rail cars to transport its ore and initially it would require greater expenditure on mine development. Giralia has a total of seven projects it is evaluating in the Pilbara and mid-west region of WA and has $60 million in cash deposits to pursue development.

Atlas Iron has a host of projects scattered across the region and recently gained producer status. It is expected to reach an annual production rate of 6 million tonnes a year by December.

While that is small compared with the hundreds of millions of tonnes shipped by BHP and Rio, it will provide good cash flow for Atlas to pursue its Ridley magnetite project.

Ridley is a 2 billion tonne resource and has the potential to be a world-class mine. With development costs estimated at $3 billion, the ability to access BHP’s Goldsworthy line could bring a development time frame forward and lower production costs.

Aquila Resources is examining a $4 billion development of its West Pilbara iron ore project near Rio Tinto’s operations in the Pilbara.

The project may be able to use the Robe River line to reduce both mine development costs and long-term costs of production.

Fortescue, the instigator of moves to get access to BHP and Rio’s dedicated iron ore rail network, was not a big winner under the tribunal’s decision as two of its potential new mines are located near rail lines that were not declared open access.

Fortescue may yet appeal the tribunal’s decision to try to get the remaining two closed rail lines declared open access, but BHP and Rio may take similar action to try to have the tribunal’s decision on open access overturned.

BRW

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