tty now to takeover railway

Kiernan signals railway move

Tuesday, 20 May 2008
Kate Haycock

MICHAEL Kiernan, head of emerging iron ore miner Territory Resources, has flagged his company’s intention to become involved in the FreightLink sale as the rail provider, responsible for the Adelaide to Darwin rail service, is put on the market.



Michael Kiernan

The company and its key infrastructure asset, the rail line bisecting the continent, are up for sale after FreightLink faced difficulty meeting its debt obligations from the project’s construction.

Kiernan revealed Territory’s intention to become involved in the sale this morning.

“Territory Resources, together with our partner, Noble, plan to declare our interest that we would like to become involved in a possible acquisition,” Kiernan told MiningNews.net.

Territory has become one of the major customers of the rail line since it began mining at its Frances Creek operations last year, with 500,000 tonnes of iron ore transported from the mine to Darwin port since operations began.

“The bottom line is, as Andrew Forrest says, mining of iron ore is not necessarily digging the iron ore, it’s the delivery,” Kiernan said.

“Logistics is the single largest cost area of iron ore and any way you can reduce the operating costs in that area is significant.”

Kiernan said Territory would be very keen at the least to acquire the rolling stock on the railway the company currently uses for its iron ore exports.

However, he said he was not sure at this stage what sort of investment may be required, although the rolling stock associated with Territory’s operations alone is worth “in the order of $10-12 million”.

“We’d be keen, and we will be declaring an interest to UBS either on our own or together with a consortium we’d be more than happy to be involved in an acquisition of FreightLink,” he said.

He added that Territory’s plan had only been formulated this week and the company would be declaring its interest to UBS in the next few days.

Finished in 2004, the Darwin–Adelaide railway cost some $A1.2 billion to build, including a $500 million injection from the federal, NT and South Australian governments.

Adelaide-based FreightLink posted an after-tax loss of more than $50 million last year despite posting 70% growth in volumes transported last year.

The company has appointed bank UBS its adviser going into the sale and it is rumoured Queensland Rail, Babcock & Brown Infrastructure Group or Asciano Group could be interested in buying the business outright.

According to the Australian newspaper, state or federal government involvement could also be a possibility.

John Hoyle, an editor at Railway Digest, told the paper that the governments which helped finance the railway would not allow it to close even in the absence of a suitable buyer.

FreightLink chief executive John Fullerton has also said publicly this week rail services would not be affected by the sale process.

The railway line has become a key piece of infrastructure for the burgeoning minerals industry in the NT and SA.

Mid-tier miner Oxiana signed a 10-year contract with FreightLink last year over the haulage of concentrate from its Prominent Hill development in South Australia. Prominent Hill is due for commissioning in November.

Singapore-based Om Holdings is another key customer, freighting manganese from its Bootu Creek operations to Darwin.

Kiernan said he had not held discussions with any of the other emerging or existing miners using the railway over Territory’s planned involvement.
In the meantime, Kiernan said it was business as usual for Territory.

“We’ve had discussions with [FreightLink] and they have advised there will be no impact on our operation at all.”

Territory plans to ramp up operations at its Frances Creek mine to 2 million tonnes per annum by the end of 2008, targeting 3Mtpa by June 2009.

Territory’s shares were last trading at 92c, down 4.5c this morning.