Fortescue Metals Group

Hong Kong firm wins battle against Australia’s Fortescue over rail pricing

PUBLISHED : Friday, 13 September, 2013, 10:07am
UPDATED : Friday, 13 September, 2013, 10:08am

Fortescue Metals Group will be allowed to charge Brockman Mining only about half the price it was targeting to let the Hong Kong-based firm use its iron ore rail line, under a state regulator’s landmark ruling on Thursday.

Brockman is among several emerging iron ore miners that have held talks with Fortescue about using its rail line, but is the first to test a state code that requires Fortescue to let others use the rail line.

The Western Australia Economic Regulation Authority said Fortescue could charge between A$84.7 million and A$316.9 million a year (HK$608.9 million to HK$2.28 billion) for access to the Pilbara Infrastructure (TPI) -- the only iron ore rail line in Western Australia that must be open to rival miners.

That compares with a floor price of A$73 million and a ceiling price of A$576 million that Fortescue proposed in May.

Assuming a capacity of 155 million tonnes a year on the line, the rate per tonne allowed by the regulator is between A$0.55 and A$2.04, which is less than some analysts’ estimates.

“Fortescue shareholders are not obligated or required, under any agreement or legislation, to subsidise or risk wrap third party projects that are uneconomic,” Fortescue Chief Executive Nev Power said.

Hong Kong-based Brockman wants to export up to 20 million tonnes a year for 20 years from 2016.

Without access to Fortescue’s rail and having been kept off giants Rio Tinto and BHP Billiton’s rail lines, miners like Brockman, Atlas Iron and Flinders Mines would have to build their own infrastructure, which would cost billions.

Fortescue said the ruling does not mean it will have to negotiate with Brockman yet, because under the state code Brockman must first prove it has the funding to go ahead with its plan. It also has to show there is enough capacity on the route for its iron ore.

“The applicant has failed to satisfy these requirements,” Fortescue said, adding that it was consulting its legal counsel about the floor and ceiling costs that the regulator had set.

Brockman had no immediate comment.

The next step for the company would be to show Fortescue that it has the financial capacity to fund its Marillana mine in the Pilbara region in Western Australia.