25/06/2014 - 14:08

Aurizon writes off East Pilbara

25/06/2014 - 14:08

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Rail operator Aurizon has written off $19 million it has spent trying to develop an infrastructure solution for iron ore producers in the East Pilbara, including Atlas Iron and Brockman Resources.

Rail operator Aurizon has written off $19 million it has spent trying to develop an infrastructure solution for iron ore producers in the East Pilbara, including Atlas Iron and Brockman Resources.

Aurizon said it will continue its interest in developing an independent railway linking planned mines in the East Pilbara with Port Hedland, but “this project is now viewed as significantly longer term in nature”.

“As such, capitalised project costs associated with the project of $19 million will be written off.”

This announcement follows rapid progress on Aurizon’s joint takeover bid (with Chinese steel producer Baosteel) for Aquila Resources.

Aurizon said its main focus would be the $7 billion West Pilbara iron ore project, which includes construction of a new railway and a new port at Anketell Point, near Dampier.

The $19 million write-off indicates the challenge facing smaller companies trying to develop new mines in the East Pilbara.

BHP Billiton and Fortescue Metals Group already have rail lines to Port Hedland, and Roy Hill Holdings is building a third rail line to the same port, but to date there has been little interest in carrying ore for third parties.

Atlas currently trucks its ore to port but is aiming to build larger mines further inland, most likely requiring a rail link, while Brockman is hoping to develop the Marillana mine. 

The Pilbara write-off was part of a much larger package of impairments and provisions, totalling $130 to $160 million, primarily related to Aurizon’s Queensland coal operations.

That is on top of $222 million of provisions announced last December.

The company formerly known as QR National has made 103 redundancies, mainly from its head office, less than two months after announcing plans to cut 480 staff from its Queensland maintenance operations.

Aurizon also said the Dudgeon Point coal terminal and phase two of the Wiggins Island coal terminal, both in Queensland, were not expected to progress in the foreseeable future.

The extra job cuts announced on Wednesday will increase Aurizon's redundancy costs to between $55 million and $65 million for the 2013/14 financial year.

The deferral of work on the coal terminals will take $40 million to $45 million from its asset values, and Aurizon has also discarded more locomotives and wagons, adding $20 million to $25 million in writedowns.

Chief executive Lance Hockridge said redundancies and asset value reductions come after further reviews of the company's market outlook.

"While that outlook for the resources sector is still very attractive, it is clearly more subdued," he said.

"These announcements represent a comprehensive response by the company to those circumstances."

Aurizon's new writedowns and impairments total between $130 million and $160 million, before tax.

That will take its impairments to between $352 million and $382 million in 2013/14, which will significantly reduce its annual profit.

The company transports more than 250 million tonnes of commodities each year, connecting mines and farms with ports and export markets.

The 480 job cuts announced in May will come as Aurizon reduces and eventually closes its rail heavy maintenance operations in South Townsville and Redbank.

Aurizon shares were down by 0.8 per cent to $4.96 at 2:00pm WST. 

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