to hold or not to hold …, page-33

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Talk of Pilbara open access line may ruin Wah Nam's pitch
BY: BRYAN FRITH From: The Australian April 27, 2012 12:00AM
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IF the feasibility study for a new independent 600km open access railway line to transport iron ore from the East Pilbara to Port Hedland proves to be viable, it would finally open the possibility for a number of junior miners to develop landlocked, or "stranded", deposits in the region.

Chief among the beneficiaries would be Atlas Iron and the nearby Brockman Resources, which is now controlled by the Hong Kong-based Wah Nam International, which no doubt explains why Atlas has entered into an MOU (memorandum of understanding) with railway operator QR National to conduct the feasibility study.

The study is expected to be completed by the end of the year, with first haulage earmarked for as early as 2015. That would suit Atlas, which produces iron ore at a rate of 6 million tonnes per annum (mtpa) but has ambitious plans to grow production to as much as 46mtpa.

Atlas already has an allocation to ship up to 15mtpa from the existing Point Utah port facility, while North West Iron Ore Alliance, of which Atlas and Brockman are members, has an allocation of 50mtpa from the yet to be built South West Creek facility. Atlas's share is believed to be 31.5mtpa. Atlas trucks its ore to Port Hedland and aims to lift output to 15mtpa by September 2015. Going beyond that would require a railway, so completion of a rail link by 2015, as envisaged, would provide a near-seamless transition for Atlas.

Atlas would be a foundation customer of the railway and could become a junior equity partner, potentially holding up to 25 per cent. That would give it a seat at the table of the railway vehicle and protect and maintain its foundation customer rights.

A rough rule of thumb is that construction of a railway line costs about $5 per kilometre and, on that basis, the capital costs of an open access line would be at least $3 billion.

An open access line comes into consideration because iron ore majors BHP and Rio Tinto have for decades rebuffed all attempts to force them to allow access to their railway networks, claiming they are an integral part of their production process.

The Australian Competition Tribunal in 2010 declared access to BHP's Mount Goldsworthy line but did not declare its Mount Newman line or Rio's Hamersley line.

Eighteen months ago, FerrAus claimed to have the right to have its iron ore hauled by the Mount Newman participants (BHP, Mitsui-Itochu Iron and Itochu Minerals) under the WA 1987 Rail Transport agreement.

Under that agreement, the Mount Newman participants are contractually required to carry third-party iron ore and cannot claim they are capacity-constrained. If there is insufficient capacity then the Mount Newman partners must install additional capacity, at the cost of the third party. That right has previously been upheld by the WA Supreme Court.

Nevertheless, BHP strongly resisted the FerrAus to gain access to the Mount Newman line.

Atlas acquired FerrAus last year and its move to join QR in a feasibility study for a new line suggests it wishes to avoid a long dispute with BHP over access to the Mount Newman line.

But a haulage arrangement with BHP on the under-utilised Mount Goldsworthy line remains a possibility.

Andrew Forrest's Fortescue Metals, after numerous battles with Rio and BHP, built its own rail line to develop its iron ore resources, while Gina Hancock's Hancock Mining is planning a rail line to develop Roy Hills.

Fortescue has allowed limited access to its rail line but has driven a hard bargain.

An open access line would enable other juniors in east and southeast Pilbara with stranded deposits to build, in stages, spur lines to connect to the rail line. It is suggested the line could need a minimum haulage throughput of 75 million tonnes a year to be viable, so it is probably predicated on such developments.

The timing of the announcement of the feasibility study may not be helpful to Wah Nam, which last year secured 55.3 per cent majority ownership and control of Brockman through a controversial hostile scrip offer that was opposed by the Brockman directors. It is seeking 100 per cent ownership via a mop-up cash-and-scrip bid, which this time is recommended by the independent directors.

Brockman is looking to develop a $1.9bn, 15-25mtpa mine at its Marillana project but it would need to use the Mount Newman line. An open access line would improve the prospects of bringing Marillana into production.

At last count, Wah Nam had 83.5 per cent of Brockman but a solid core of retail holders have faith in Marillana and are reluctant to accept.

Wah Nam, in a bid to boost acceptances to 90 per cent and enable compulsory acquisition of the remaining shares, is threatening to seek delisting of Brockman if it falls below the ASX's minimum shareholder spread requirements.

News of a possible open access line may stiffen the resolve of the remaining Brockman holdouts.