Rail sharing deal could save $1bn: FMG

28/10/2008 - 15:36

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A day after Treasurer Wayne Swan declared BHP Billiton and Rio Tinto's Pilbara rail lines open to third parties, Fortescue Metals Group Ltd says it has written to the mining giants seeking a rail co-operation deal.

Rail sharing deal could save $1bn: FMG

A day after Treasurer Wayne Swan declared BHP Billiton and Rio Tinto's Pilbara rail lines open to third parties, Fortescue Metals Group Ltd says it has written to the mining giants seeking a rail co-operation deal.

Fortescue yesterday celebrated a win when it won its four year battle to have the Hamersley, Robe River and Goldsworthy rail lines open, which means junior miners have the right to run their own locomotives and rolling stock on the big iron ore miners' existing rail lines, subject to agreements.

FMG executive director Graeme Rowley said the federal government's decision will reduce expansion costs for the company and also for BHP and Rio.

"Our letter indicates we look forward to not only negotiating with BHP Billiton and Rio Tinto to access to their rail lines, but negotiating their access to our rail lines," Mr Rowley said.

"This will allow Australia to regain market share from our international competitors who are now generating significant revenue at Australia's expense.

"Fortescue indicated that if port co-operation opportunities could be identified with Rio Tinto and BHP Billiton, Fortescue would welcome access opportunities.

"We remain intent on reaching our 80Mta first stage expansion in the 2009/10 financial year and our 160Mta ambition as quickly as possible. BHPB Iron Ore have similar expansion plans and sharing rail could save the companies in excess of A$1 billion."

Both BHP and Rio said the decision will compromise efficiency of its integrated mine, port and rail operations.

The mining giants are likely to appeal the decision.

Meanwhile the global meltdown has prompted FMG to slow down its Pilbara expansion plans, with a number of WorleyParsons personnel working on the company's project "redeployed" to other projects.

"Large front-end expansion expenditure costs have been identified and deferred enabling some WorleyParsons personnel to be redeployed on other projects," he said.

"This dovetails with an RCA [rail co-operation agreement] for Fortescue, as well as potentially supporting Rio Tinto and BHP Billiton to manage their expansion plans in a difficult market."

It has been reported elsewhere that up to 200 employees from WorleyParsons have been moved to othe projects.

The company had set out to achieve a mining rate of 80 million tonnes per annum by the end of the 2009 calendar year, however Mr Rowley's comments suggest the timing has been pushed out.

"Fortescue continues to closely monitor and manage its operations and expansion projects," he said.

"Our customers continue to order and pay for Fortescue's iron ore due to the superior processing characteristics of Fortescue's Rocket Fines, while we closely manage expenditure on the engineering design of the staged expansion project from 55Mta to 80Mta as part of this prudential oversight"

 

The announcement is pasted below:

 

Fortescue Metals Group ("Fortescue" "ASX:FMG") has today written to BHP Billiton Iron Ore and Rio Tinto Iron Ore seeking a Rail Co-operation Agreement ("RCA") between the three companies to increase Australia's export efficiency by utilising each other's Pilbara rail networks.

Fortescue Executive Director Graeme Rowley said Federal Treasurer Wayne Swan's decision yesterday to declare the Hamersley, Robe River and Goldsworthy railway lines provided an unambiguous signal from the Federal Government that the companies should share infrastructure to provide significant benefits to Australia and Australians.

"Our letter indicates we look forward to not only negotiating with BHP Billiton and Rio Tinto to access to their rail lines, but negotiating their access to our rail lines. This will allow Australia to regain market share from our international competitors who are now generating significant revenue at Australia's expense," he said.

"Fortescue indicated that if port co-operation opportunities could be identified with Rio Tinto and BHP Billiton, Fortescue would welcome access opportunities."

Mr Rowley said an RCA would not only reduce Fortescue's expansion costs to achieve its targeted 160 million tonnes per annum ("Mta") production rate it would reduce BHP Billiton's and Rio Tinto's expansion costs substantially. Plus it would enable smaller miners and State and Federal Governments to generate untapped revenue from previously stranded deposits.

"The ability to utilise and expand rather than duplicate existing infrastructure is even more important given the current upheaval in world financial markets," he said.

"Fortescue continues to closely monitor and manage its operations and expansion projects. Our customers continue to order and pay for Fortescue's iron ore due to the superior processing characteristics of Fortescue's Rocket Fines, while we closely manage expenditure on the engineering design of the staged expansion project from 55Mta to 80Mta as part of this prudential oversight.

"Large front-end expansion expenditure costs have been identified and deferred enabling some WorleyParsons personnel to be redeployed on other projects. This dovetails with an RCA for Fortescue, as well as potentially supporting Rio Tinto and BHP Billiton to manage their expansion plans in a difficult market.

"We remain intent on reaching our 80Mta first stage expansion in the 2009/10 financial year and our 160Mta ambition as quickly as possible. BHPB Iron Ore have similar expansion plans and sharing rail could save the companies in excess of A$1 billion."

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