BHP, Rio May Have to Share Australian Ore Railroads (Update2)

Tag : iron ore

Sept. 24 (Bloomberg) -- BHP Billiton Ltd. and Rio Tinto Group, the second- and third-largest iron oreexporters, may be forced to slow deliveries after the nation'shighest court upheld a ruling that favors sharing their railnetworks with rivals.
The High Court today rejected BHP's effort to block Fortescue Metals Group Ltd. from using parts of its Mt. Newman and Goldsworthy rail tracks.The Australian Competition Tribunal is due to make a final accessdecision next year, while Treasurer Wayne Swan has until the end of October to rule on use of three other orelines in Western Australia, including two owned by Rio.
BHP has said sales may be curbed if it has to share its railroads, which are expectedto carry 137 million metric tons of iron ore this fiscal year. Rioand BHP are expanding their iron ore operations to meet recorddemand for the steelmaking raw material that's pushed prices to arecord.
``BHP doesn't have much spare capacity,'' Peter Arden , an analyst at Ord Minnett Ltd., an affiliate of JPMorgan Chase& Co., said from Melbourne. ``It could cut 10 percent of theirproductivity initially.''
BHP, based in Melbourne, was little changed at A$37.87 at the 4:10p.m. Sydney time close on the Australian Stock Exchange . Rio Tinto, traded in Sydney and London, dropped 2.5 percent toA$105.50 and Fortescue was little changed at A$6.46.
The tribunal is receiving submissions and is expected to hear thecase in March-April next year, Fortescue's Executive DirectorOperations Graeme Rowley said in a statement. BHP will have to negotiate access to thelines should the tribunal rule in Fortescue's favor, he said. Thedecision also applied to the three other contested lines andFortescue was ``hopeful that today's decision will encourage earlyaccess'' talks, Rowley said.
Better Solutions
``We continue to believe there are better, more efficient solutionsavailable, including rail haulage and other commercialarrangements, such as mine gate sales,'' BHP's President of IronOre Ian Ashby said in the statement. The company's iron ore mine,port and rail operations are running at full capacity, Ashby said.
The court decision means Perth-based Fortescue's 2004 applicationto the National Competition Council to access parts of the raillines by having them declared a ``service'' continues. The councillast month sent its final recommendation for the three other railways to Treasurer Swan.
The council's recommendation will be made public when Swan makeshis decision. Should Swan not make a decision by Oct. 28, Fortescuewould lose the case, the council said Aug. 29.
`Provide Access'
``It is a reality that BHP will have to give access,'' Arden said.``They will have to come to a commercial arrangement because theydon't have to provide access for nothing.''
Increasing access will promote competition in the market for ironore haulage, the council said in a draft recommendation on June 20,backing Fortescue's application. Failing to grant third- partyaccess may also add to development costs by forcing competitors tobuild duplicate railroads, it said.
Rio Tinto , the second-largest exporter of iron ore, says opening rail accessmay cost Australia A$30 billion ($25 billion) and would riskfurther investment in production. Steel mills are paying recordprices for iron ore.
BHP, the world's biggest mining company, had appealed a 2006Federal Court decision allowing Perth-based Fortescue to use therailroad because ore transport wasn't part of the productionprocess.
`Production Process'
``The use by Fortescue of a railway line that was integral to BHPBilliton's iron ore production process would not amount to the useby Fortescue of that production process,'' the court said,according to an e-mailed copy of the judgment.
BHP operates the Mt. Newman and Goldsworthy iron ore railroads inWestern Australia. Rio Tinto controls the Robe River and Hamersleylines. Most of the iron ore from Australia, the world's largestexporter of iron ore followed by Brazil, comes from the state.
Fortescue built its own A$2.8 billion rail and port operation andbegan production at its Cloudbreak mine in May this year. It wantsto use the Mt. Newman line to access the undeveloped Mindy Mindydeposit, a joint venture with Palmary Enterprises Ltd., controlledby Ukrainian billionaire Gennadiy Bogulyubov.
Mindy Mindy could produce 5 million tons of ore a year, though adetailed study won't be done until Fortescue wins access to therailroad.
To contact the reporters on this story: Gemma Daley in Canberra at gdaley@bloomberg.net , Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net Last Updated: September 24, 2008 04:06 EDT