Nauseous description of WNI as "plucky", I can think of a much more accurate word
Rail push bypasses legal debate
Making tracks .?.?. luring other users to its new rail line will be crucial for QR. Photo: Reuters MATTHEW STEVENS Confirmation of a maturing plan to build a new open access rail system in the Pilbara asserts the flowering ambitions of Atlas Iron and QR?National just as it confirms, again, the flawed logic that launched a still-live, eight-year legal debate over third-party rail access.
In a mutually reinforcing deal announced yesterday, Atlas has allied itself with the Queensland-based transport major in a proposal that would see a new railway progressively link Port Hedland to the mining adolescent’s expansion options.
The translation of this memorandum of understanding into real investment would represent a certain vote of confidence by the nation’s biggest logistics business in the viability of the projects on the Atlas drawing board.
At the same time, by delivering itself into QR’s capable hands, Atlas might generate genuine first-mover advantage for the expanding Queenslander as it attempts to establish a material footprint in the west coast iron ore business.
The other big positive here for QR is that Atlas’s staged requirements might well allow it to take a pretty prudent approach to building its iron ore launch pad.
There has been talk of a $3.5?billion price tag on a rail network big enough to generate an acceptable rate of return. While that sort of number might be the long-term cost, it would seem the idea here is to do this in stages, in maybe more digestible $1?billion chunks.
The Atlas plan is built around two new production hubs, the first around Mt Webber, about 150?kilometres from the coast, and the second on the much more distant fringe of the south-east Pilbara.
Atlas is on track to ship nearly 6?million tonnes of ore this year and has plans to bring on two new mines (Abydos and Mt Dove) in fiscal 2013 that will lift capacity to 12mtpa. The current plan is to get that ore to port by trucks that drive a private road all the way to Port Hedland.
But without access to a railway the expansion ends there.
The bespoke approach QR is taking to the Atlas project would also allow it to readily account for any other juniors that have a resource but no feasible way to get it to market.
Indeed, luring other users to its new line would be pretty critical for QR in achieving any sort of shorter-term Pilbara payback.
Among the potential secondary customers would certainly be the plucky Chinese limo company turned iron ore wannabe, Wah Nam, which continues its steady creep to?full ownership of Brockman Resources.
Brockman’s Marillana prospect sits at pretty much the halfway point of the trip between the two pivots of Atlas’s plans. Marillana is proposed to be a 17mtpa operation with an initial mine life of 25 years. Add that to the 46mtpa that Atlas is talking about and you start to get a bit of traction.
The key obstacle standing between Marillana and production has always been a lack of rail transport.
And that brings me neatly to the National Competition Council and the dicey issue of regulated rail access.
Since 2004, Australia’s two iron ore majors have spent tens of millions of dollars defending the integrity of their railways following a now legendary attempt by Fortescue Metals to drive its trains up other people’s networks.
In 2005 the NCC recommended that the Pilbara networks owned by BHP Billiton and Rio Tinto be declared under Part IIIA of the Trade Practices Act, a move that would, if endorsed by the Treasurer, give Fortescue an enforceable right to negotiate access terms.
The NCC’s view was based, in part, on its finding that the rail networks were infrastructure of national importance that could not be duplicated economically.
In the years since that decision, iron ore demand and prices have rocketed, with the result that Fortescue itself has already duplicated the BHP network. Now Atlas and QR National are planning to do pretty much the same thing.
And, just for good measure, there are even more advanced plans by Gina Rinehart’s Hancock Prospecting for what would be a fourth line linking mines with Port Hedland.
It would seem pretty likely that QR has already been in discussions with Hancock and an alignment of effort might now become a matter of further engagement.
Either way, while the legal debate over third-party access continues, with the High Court recently seeming to take a dim view of the Australian Competition Tribunal’s decision to neuter access orders against the Pilbara rail owners, the essential building blocks of the original NCC finding have been made to look very fragile indeed.
Another cornerstone of the NCC case was that enforcing an access regime on BHP and Rio would promote competition in “at least one market’’. (This is another of the criteria critical to declaration orders.)
So what was the market big enough to force the NCC’s hand here? Well, no, not the iron ore market, not even the local steel market. The big one for the NCC was the market in mining tenements in the Pilbara.
Yep, the world-leading efficiency of the BHP and Rio networks was to be compromised in the name of what was described by some, perhaps rather too brutally, as the “market for spivs’’.
Just finally, the other potential winner from a QR decision to stake a claim in the Pilbara logistics business might well be Qube Logistics.
Qube, you see, runs the multi-user port facilities at Port Hedland. That port is owned in a joint venture between Atlas and Brockman.
Now, that same joint venture owns the South West Creek facility that will add another 50mtpa to the juniors’ capacity. And Qube, which has a comfortable working relationship with QR on the east coast, would seem to be an organic choice to operate that second, bigger port.
BRM Price at posting:
$2.39 Sentiment: Buy Disclosure: Held
