Hi everyone,
Following an article from the Australian online
BHP Billiton and iron ore junior Atlas Iron are believed to be in the final stages of a historic rail haulage agreement in the Pilbara.
It is understood that both Atlas and fellow junior Brockman Resources have been involved in separate and lengthy negotiations with BHP over haulage.
Those negotiations are secured by extremely onerous confidentiality agreements that prevent any public comment on the nature and likely outcome of discussions, aimed at delivering access to the Global Australian's Mt Newman rail services.
Third-party access to the Pilbara rail networks that are wholly owned and exclusively used by BHP and Rio Tinto has been an issue of vigorous debate for the best part of 20 years. A successful conclusion to the current round of secret negotiations would represent the first fulfilment of obligations long prescribed in state mining agreements that cover the WA operations of both global miners.
The new Pilbara state agreements introduced yesterday to the WA parliament provide a raft of new flexibilities to the way Rio and BHP can run their individual Pilbara operations. But they do absolutely nothing to change or limit pre-existing requirements to provide freight haulage to third parties.
It could well be that the successful renegotiation of those state agreements will prove the catalyst to settling on terms with juniors sitting on stranded iron ore resources.
Atlas and Brockman, which is currently subject to a takeover offer from Hong Kong investment house Wah Nam International, are both members of the North West Iron Ore Alliance.
Crucially, the NWIOA is now entitled to 50 million tonnes a year of port and shipping channel capacity at Port Hedland, which is the destination for the rail networks of both BHP and Fortescue Metals Group. It is understood that the third member of the alliance of eastern Pilbara iron ore juniors, FerrAus, was also involved in negotiations with BHP.
But FerrAus, whose Robertson Range and Davidson Creek projects are slightly less mature that those of its NWIOA partners, walked away from haulage discussions on September 23, apparently because it was not satisfied that BHP was involved in a bona fide negotiation.
Since then, FerrAus -- which is also subject to a takeover offer from Wah Nam -- has signalled the seriousness of its intent by seeking the appointment of an independent expert, in the form of ex-ACCC boss Allan Fels, to "determine the terms and conditions of rail haulage".
The letter confirming the request for Fels' endorsement was addressed to the head of BHP iron ore, Ian Ashby, and to BHP chief executive Marius Kloppers, which suggests that discussions had reached the most senior levels of the Global Australian.
FerrAus believes BHP is required to provide rail haulage under the terms of both the 1964 and 1987 WA state agreements with the Mt Newman joint venturers, BHP and Japan's Mitsui-Itochu.
What's more, FerrAus maintains the interpretation of the 1987 agreements by the Supreme Court in the celebrated case of Hancock v Mt Newman JV of 2003 means BHP cannot argue that it doesn't have the spare capacity to sell to aspiring third parties.
The way FerrAus's legal people read the agreements, the deal here is that BHP has to build new capacity should it be required by a third party and that it must respond to authentic requests for haulage with an offer of justifiable commercial terms and conditions.
Public debate over third-party access has been relatively highly charged since 2004 when Fortescue sought declaration of BHP's railway. That claim subsequently grew to include the whole Pilbara system while Fortescue went out and raised nearly $US3 billion to duplicate BHP's railway and port facilities.
We are now six years along a legal maze that has taken the parties through the National Competition Council, through the offices of two federal treasurers and in and out of several iterations of the Federal Court. As of today, Fortescue has secured Australian Competition Tribunal support for access to a line it doesn't want to use (the Robe River line), missed on the line it really wanted (Rio's Hamersley link) and on the target of its original claim, Mt Newman.
Fortescue and Rio have appealed those decisions while BHP will continue to defend its network from enforced access.
It is important to appreciate that the pursuit of haulage is very different from the access Fortescue wants. Fortescue wants to drive its trains on the existing networks while Atlas, Brockman and FerrAus are seeking to pay BHP to use its trains and track to carry their ore to port.
Any commercially sustainable, long-term deal on haulage with BHP would be company-making for both Atlas and Brockman.
Atlas is already producing iron ore at a rate of 6 million tonnes a year from the Wodinga and Pardoo projects. Wondinga abuts the Mt Newman railway just 80km from port while Pardoo sits a little to the north of BHP's massively under-utilised Goldsworthy link. Currently that ore is being trucked to the new Utah Point loading berths at Port Hedland.
Atlas's growth plans have it doubling production to12mtpa by 2012 on the back of the Turner River hub project, which see it become the blending point for up to 10mtpa of direct ship hematite produced from the Wodinga, Abydos and Mr Webber mines.
Brockman, on the other hand, has plans to produce 20mtpa by 2013 from its Marillana project in the eastern Pilbara. The thing about Marillana is that it sits on the fringe of both the Mt Newman line and the spur line that connects it to the massively profitable Yandi deposit.
Private confidence that some sort of arrangement with BHP was becoming a realistic option might well have been one reason why Brockman chairman Barry Cusack was so forceful on Tuesday in recommending that his shareholders reject the $926 million takeover offer from Wah Nam International.
The way Cusack sees it, Wah Nam's currency is doubtful (it is offering its own scrip on the condition that its application to the ASX for dual listing is accepted by a range of regulators) and it is bringing nothing to the table that the miner does not already possess.
Cusack said yesterday he could neither confirm nor deny claims Brockman was in formal discussion with BHP over access. BHP too had no comment. And Atlas Iron's managing director, David Flanagan, did not return our calls.
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