QR National Studying Pilbara Iron Ore Railway Plans -Sources

Date : 10/31/2011 @ 10:25PM
Source : Dow Jones News
Stock : Cliffs Natural Resources (CLF)
Quote : 7.73  -0.13 (-1.65%) @ 7:45PM

QR National Studying Pilbara Iron Ore Railway Plans -Sources

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Australia's largest coal hauler QR National Ltd. (QRN.AU) is looking at grabbing a share of the $150 billion global iron ore market with plans to develop a rail operation in the country's Pilbara region, according to three people with direct knowledge of the situation.

QR National, which carried 182 million metric tons of coal from mines along Australia's east coast in the year to the end of June, has an internal team studying the Pilbara rail project and has hired former BHP Billiton Ltd. (BHP) uranium head and Lihir Gold Ltd. Chief Executive Graeme Hunt to consult on its options.

The project would open up prospects for smaller miners at a time of rising iron ore demand. Australia's ore exports are expected to near-double by 2015, and the Pilbara already accounts for 40% of the 1 billion tons a year of iron ore traded globally by sea.

It would also assist QR's move into an area enjoying higher profit margins than its coal business.

"Looking in the growth areas that leverage QR's capabilities, there's only a couple of big spaces where they could do this," said one person familiar with QR's strategy.

The three largest miners in the Pilbara--Rio Tinto PLC (RIO), BHP, and Fortescue Metals Group Ltd. (FMG.AU)--each operate their own rail lines to transport ore from inland mines to three ports along Australia's northwest coast.

The vast cost of building such infrastructure has largely kept smaller competitors out of the market, and major miners have been reluctant to open up their lines to potential rivals.

Several miners have mooted building their own tracks. Hancock Prospecting Ltd., controlled by mining tycoon Gina Rinehart, was in July granted a license for a track that would carry 55 million tons annually.

Atlas Iron Ltd. (AGO.AU), which carries six million tons annually in trucks, wants to raise its output to 46 million tons through a rail project, while Hong Kong-based Wah Nam International Holdings Ltd. (0159.HK) has also suggested building its own track.

An industry executive familiar with the discussions said a more likely model would include several of these smaller miners, plus equity stakes from non-mining investors such as Asian consumers or infrastructure specialists.

"You need 80 million tons-90 million tons a year travelling on the railway to justify its construction," the executive said.

QR has previously mooted taking an equity stake in Oakajee Port and Rail, a troubled iron ore export project in the Mid West region south of the Pilbara. The company carries 8.5 million tons a year of ore from Cliffs Natural Resources Inc.'s (CLF) Koolyanobbing mine east of Perth, making it the largest third-party iron ore hauler in Western Australia state.

-By David Fickling, Dow Jones Newswires; +61 2 8272 4689; david.fickling@dowjones.com

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