Some very interesting thoughts here and as mentioned I am unsure of how this whole rail access thing will play out. VERY interesting indeed to see someone who may have some practical insight into the issue comment.
My thoughts on open access are predicated on a lack of significant excess capacity RELATIVE to supply ramp ups that will inevitably occur at any time a commodity price is significantly above long term averages for a period of time.
Obviously if there was enough spare capacity to accomodate every iron ore player out there (and within this I would also include spare port capacity) then there should be no problem. With all the FMG rhetoric around open rail access they would have no justification to not allow everyone to use the excess capacity.
However should there be limited capacity, who does FMG allow on their lines? My answer above takes a strictly commercial view and not one that accounts for any legalities - which I will say right now I have little to zero understanding of.
From a commercial perspective for any given capacity constrained third party access, FMG would benefit most from allowing ore which provides them the greatest economic return.
If there is for simplistic purposes 10 MT spare capacity, Company A wants to rail 10MT and Company B wants to rail 10MT. How then does FMG decide who rails what amount? Half and half? What if there are 10 players all wanting to ship 10MT to make their operations economic? You can't make them all ship 1MT as this may not be economically viable. This is a real question on my part and would love to know if the legislation is prescriptive or definitive on this point.
The cynical point of view would contemplate that FMG builds the line and paid for it. Third party access can be a very broad definition and you simply cannot allow anyone and everyone to access it randomly. FMG will still continue to control the scheduling and I'm sure will play a huge part on who gets access. My guess on the higher grade ore is purely based on the economics of the situation whereas in reality there may also be preexisting relationships coming into play, political considerations, etc etc.
Rio and BHP have argued that open rail access will result in overall lower throughput as intuitively 5 players trying to schedule different trains will mean much less efficiency compared to 1 player controlling all scheduling. Gate sales would be the logical conclusion to this long running issue where the rail owner will pay a discounted rate for ore at the junior's mine gate and then rail it when it suits their schedule.
Gate sales again would imply that majors will buy high grade. Is this discriminatory from a legislative perspective? I'm not sure. The key here is we know for sure that there will be more demand than supply for rail capacity and you cannot have each company shipping an uneconomic amount just so everyone can have access. Some will be excluded and my best guess is this will be the marginal players that do not provide a value add to the major's.
Another interesting point brought up by a colleague is that BHP/RIO/FMG shareholders are essentially subsidising other company shareholders allowed access to their rail. They've taken on the cost of building it, the risk involved, etc etc but these juniors will then get to use it without taking any of that on. Would be a different story if the government had chosen to build the infrastructure.
Good to see some very interesting points of view coming up. I will watch this thread with interest.
Cheers UIO
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