Some commentary here regarding the rail access deal, including a quote from DF and also the opinion that "The only possible winner according to Credit Suisse is Atlas Iron".
Pilbara rail access a token win Tuesday, 6 July 2010
LAST weeks rail access victory by smaller Pilbara miners against BHP Billiton and Rio Tinto is a near-worthless token gesture, according to leading investment banks. And it will have little impact on iron ore supply from the region. The Metal Detective by Stephen Bell It is always satisfying to see the underdog triumph, whether in a sporting contest or the corporate arena.
The ultimate David versus Goliath mining struggle came a few years back, when Cazaly Resources fought Rio Tinto in the battle for the Shovelanna iron ore deposit.
Cazaly lost that bout, thanks to a helping hand from the Western Australian government.
The little guys were trampled again last week, when Julia Gillard negotiated a slimmed down resources profit tax with three global majors, leaving juniors out in the cold.
As Atlas Iron managing director David Flanagan said BHP and Rio never wanted us to be in the Pilbara in the iron ore business they see us as competitors.
So it is kind of naive of the government to think that these guys are going to act in the best interests of all companies in Australia, he told Dow Jones Newswires.
But iron ore midcaps did have a moment in the sun last Wednesday, when the Australian Competition Tribunal (ACT) declared BHPs Goldsworthy and Rios Robe River railways open access in terms of Australias competition laws.
The move, swamped in all the noise surrounding the Mineral Resource Rent Tax, seemed a rare triumph for the underdog.
Unfortunately the win was over two minor Pilbara conduits, rather than the real prizes: BHPs Newman and Rios Hamersley lines.
As noted by Deutsche Bank, the ACTs decision was actually highly positive for Rio, as the Hamersley line services nearly 90% of the companys Pilbara production.
Further, most of the additional 100 million tonnes per annum production to bring Rio's Pilbara capacity to 330 million tonnes per annum will be serviced by the Hamersley line.
But what about the declaration on Robe, the Rio line running through the West Pilbara?
Surely that is great news for West Pilbara hopefuls Aquila Resources and Fortescue Metals (at Solomon), which can piggyback on Rios line until 2018 and save up-front capital on a new connection to Anketell Point?
Aquila said as much yesterday in unveiling a feasibility study for the $A5.8 billion West Pilbara project, noting that using the Robe line would allow the company to defer spending on its own railway.
But Deutsche Bank is not overly optimistic about that scenario.
We do not see it as assured that any third parties will actually gain access by 2018, given: (a) Rio has the option of appeal to the Federal Court; (b) third parties will need to enter (likely protracted) negotiations over access with Rio; and (c) such third parties will need to identify, secure and likely construct port capacity.
For juniors close to the Hamersley/Newman lines, mine gate deals (similar to Iron Ore Holdings disputed agreement with Rio) may be the most practicable means of infrastructure access, Deutsche Bank said.
Those projects close to Hamersley rail include Brockmans Duck Creek and Murchisons Rocklea, it added.
Credit Suisse, meanwhile, described the ACT decision as a token win for smaller miners, as the Goldsworthy and Robe lines were of low commercial value for most.
The most substantial geological endowments in the Pilbara are located in the centre nowhere near either the Robe or Goldsworthy lines, Credit Suisse said.
The real game changer for the juniors was missing.
That should have come early last week when WA Premier Colin Barnett trumpeted his iron ore royalties deal with BHP and Rio.
Smaller miners had hoped that Barnett, as part of his royalties package, would force the two majors to modify their state agreements, making their rail lines more accessible.
Barnett got his royalty increase but, so far, has not managed to have the state agreements modified, Credit Suisse said.
Under the existing agreements, BHP and Rio must negotiate with third parties on ore haulage, but only if such action doesnt unduly impact their own operations.
This is the key that has kept BHP and Rio off the hook, and why the real prize (access to the Mt Newman and Tom Price lines) remains out of reach of FMG and others, Credit Suisse said.
Access to the Goldsworthy and Robe lines means next to nothing for FMG, the broker said.
The only possible winner according to Credit Suisse is Atlas Iron, with its 2.4Mtpa Pardoo project located almost on the Goldsworthy line.
Unfortunately building rail loading infrastructure for a small tonnage, short-life project such as this is probably not a strong business case it is only 75km by truck anyway, Credit Suisse said.
However, the broker conceded there may be some upside for Atlas Ridley magnetite deposit, which effectively sits below Pardoo.
Taking a more global perspective, Macquarie Bank doesnt expect a flood of junior-driven iron ore developments in the Pilbara as a result of the ACT decision.
There will be minimal impact on iron ore supply, owing to the opening up of the Goldsworthy and Robe River lines to third parties, in our view, it said.
That view sums up quite nicely the ramifications of a ruling long on symbolism, but short on commercial significance.
