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FMG scotches Hancock rail deal linkBy Peter Klinger | View Archive September 28th, 2010, 10:47 am
There was talk around West Perth last week that Gina Rinehart and Andrew Forrest had struck a deal that would help Hancock Prospecting get its Roy Hill iron ore to Port Hedland.
The Roy Hill project lies south-east of Fortescue's Cloudbreak and Christmas Creek mines, which means Mrs Rinehart's railway line will have to traverse Forrest land.
The talk suggested a deal between the two billionaires included Hancock accessing the Fortescue line to Port Hedland. It would save duplicating almost 300km of railway to Port Hedland and likely save up to $1 billion. Hancock would not discuss its rail progress but sources close to Fortescue suggested no deal has been signed. And in any case, they say, Hancock would want its own railway line.
Plus, what could Hancock offer Fortescue in return?
Hancock has said it wants to complete a bankable feasibility study and even secure finance for its $US6.6 billion ($6.9 billion) Roy Hill development by the end of this year. Posco and fellow South Korean group STX are project partners and - presumably - will help with arranging finance.
? There is the prospect of four railway lines running almost parallel to each other to Port Hedland. BHP Billiton and Fortescue already have theirs, and are zealously guarding access to the tracks.
Then there is the Roy Hill line while Brockman Resources also needs a railway to enable development of its big but low-grade Marillana deposit, south of Cloudbreak.
Brockman is expected to release the findings of its definitive feasibility study this week, with focus on the forecast cost of beneficiating ore grading in the low 40s per cent iron into a 61 per cent product. Its rail options are equally interesting.
As with Roy Hill, building a link from Marillana to either the BHP or Fortescue lines would be the cheapest option (based on capital cost only) but it remains unclear how receptive BHP and Fortescue are and how onerous their demands are.
The wildcard in all of this is that Brockman will tie itself to a Chinese group willing to foot the cost of a new rail line to Port Hedland, based on the understanding the new infrastructure would spark consolidation among the Pilbara juniors. Either Brockman would be the vehicle, or the newly-created railway company would take cornerstone positions in the owners of the iron ore. Likely targets could be juniors FerrAus and Iron Ore Holdings, given they also need rail access to enable development of their ore bodies.
When BHP swooped on United Minerals Corp last year, the official word was that UMC's high-grade Marra Mamba's Railway ore deposit suited BHP's blending needs.
But this ignored the fact that UMC was poised to be gobbled up by a Chinese suitor, and the new owner of Railway may have wasted little time building a railway from Port Hedland into BHP heartland.
BRM Price at posting:
$3.78 Sentiment: Buy Disclosure: Held
