the australian article

$7bn capacity on rail, says Fortescue Metals Group
Matt Chambers From: The Australian February 27, 2010

ANDREW Forrest's Fortescue Metals Group claims there is at least another 70 million tonnes of annual capacity, worth more than $7 billion at current spot prices, available on the private railways of Rio Tinto and BHP Billiton in Western Australian.

But the two mining giants, which have teamed up to fight Mr Forrest's attempts to use their railways, maintain third-party iron ore on their lines would cause billions of dollars of losses.

Australia's three biggest miners wrapped up their cases yesterday in a Melbourne sitting of the Australian Competition Tribunal after almost five months of testimony.

Their main focus was TSG Consulting's modelling of Pilbara railway capacity, presented to the tribunal earlier in the week.

Fortescue's lawyers said the modelling showed Rio's railways had 50 million tonnes of usable annual spare capacity and BHP's Mount Newman line could handle an extra 20 million tonnes.

Lawyers for BHP and Rio objected to this interpretation, saying extra costs and lost sales would cost billions of dollars.

In a battle that has lasted six years, Fortescue is trying to get Rio and BHP's vast Pilbara rail networks declared open to it and other haulers under part III a of the Trade Practices Act.

The tribunal's decision, on appeals of rulings by Wayne Swan and the Treasurer's predecessor, Peter Costello, is expected about the middle of the year.

BHP counsel Alan Archibald QC said third-party access, if granted, would start in 2014 at the earliest, and that was in the extremely unlikely event there was no appeal.

Closing out the final day before a decision is to be revealed, tribunal president Ray Finkelstein said it would be a very hard case to rule on.

"This might be the first case that I haven't decided before I heard it, or at least halfway through," Justice Finkelstein said.

The 50 million tonnes on Rio's lines would be available only until 2016 or 2017, but the big miner was not keen to share it, even before then, with iron ore from Fortescue's Solomon deposits.

Rio counsel Peter Collinson SC said the modelling showed Fortescue would need only five trains, costing about $100 million each, on a new railway, whereas 18 new trains would be required if Rio's rail was used.

A new railway from Solomon to the Pilbara coast would cost between $600m and $1bn, the tribunal heard.

If Brockman Resources had access to BHP's Mount Newman line for 17 million tonnes of ore a year, and Fortescue's part-owned Mindy Mindy deposit added another 3 million, BHP would lose between 2 million and 3 million tonnes of capacity, worth up to $300m, Mr Archibald said.

On top of this, scheduling third parties would also remove 20 per cent of capacity, BHP and Rio said.