Overpayment Rules & Costing Principles by UNITED MINERALS CORPORATION NL
However, there are some fundamental factors with regard to the grade quality, and low cost of Pilbara producers in relation to global supply that suggest that price reductions will not result in mine closures, namely: • The Asian markets are of such volume and growing from low per capita levels of steel consumption that there is and will be a significant Asian base load requirement even during downturns, • The Chinese and Indian ores are low grade and the Pilbara ores are of the highest grade, • Australia is the closest supplier and has a freight rate advantage, • The Pilbara producers are in the lowest quartile of production cost of global producers and low cost producers generally survive the bottoms of commodity pricing cycles especially if they are in proximity to major consumers
Page 1 Page 2 The Pilbara Infrastructure (TPI) Rail Part 5 Instruments submission for the proposed Overpayment Rules & Costing Principles by UNITED MINERALS CORPORATION NL Level 14, BGC Centre 28 The Esplanade, Perth Western Australia 6000 Postal address: GPO Box 2580 Perth Western Australia 6001 Telephone: (08) 9481 0911 Facsimile: (08) 9481 0922 1 October 2008 Page 3 United Minerals Corporation - ERA Submission – Overpayment Rules & Costing Principles 2 Table of Contents Executive Summary................................................................................................................. 3 1. Introduction....................................................................................................................... 5 2. Cost of Greenfield Railways ............................................................................................. 5 3. Stranding Risk .................................................................................................................. 6 4. Route Sections ................................................................................................................. 7 5. Economic Life of Assets ................................................................................................... 8 6. Major Periodic Maintenance and Depreciation................................................................. 9 7. Other Issues ..................................................................................................................... 9 Page 4 United Minerals Corporation - ERA Submission – Overpayment Rules & Costing Principles 3 Executive Summary United Minerals Corporation NL (United Minerals) is making this submission to the Economic Regulation Authority of Western Australia (Authority) regarding the Costing Principles and Over-payment Rules proposed by The Pilbara Infrastructure Pty Ltd (TPI) under the Rail Access Code 2000 regarding the terms of third party access to the TPI Railway in the Pilbara. United Minerals is supportive of the State, TPI and TPI’s parent, Fortescue Metals Group (FMG), to provide rail access to third parties and is prepared to meet its fair share of the cost in achieving such access if it were to seek access inside the Code. It is well recognised that TPI below rail facilities potentially offer the most cost effective method of delivering ore transport services to the eastern Pilbara. In accordance with other rail Access Regimes such access should be on fair terms to both parties similar to the Authorities Determination for WestNet Rail (WestNet) treating the rail as a stand-alone business. Cost of a Greenfields Railway TPI is proposing that the Authority accept their actual costs as the infrastructure is in effect a greenfield railway. However, United Minerals suggest that the below rail component was constructed in a manner to meet FMG financial and market contractual obligations. Such construction was not necessarily with modern equivalent assets (MEA) which would have had longer lead times reducing major periodic maintenance (MPM). Accordingly United Minerals requests that the Authority consider the Costing Principles, Over-payment Rules and the Weighted Average Cost of Capital (WACC) reflect the efficient costs of a stand-alone railway and these costs are estimated from a building block approach. United Minerals is of the view the railway has been constructed not as MEA nor represents efficient cost and is proposing that the Authority consider that the approach to MPM, unit rates, design, project management, and finance charges be similar to that of the WestNet Determination
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