Fortescue rail, port assets up for grabs
THE most important asset in the evolution of Fortescue Metals Group has been thrust into the shop window, as the iron ore exporter continues efforts to reduce its debt problems.
Fortescue has confirmed that talks are underway over the sale of a minority stake in its railway and port assets, which are held by Fortescue as a separate subsidiary called "The Pilbara Infrastructure".
Those assets have been valued by analysts at between $US4 billion and $US6 billion, meaning that a minority stake could fetch well over $US1 billion.
Rail and port infrastructure have proved to be the assets of true value during the recent iron ore boom, with numerous junior miners unable to deliver their product to market because of the lack of transport options.
While Fortescue declined to name the "strategic and financial parties" that are involved in the negotiations, it's understood the short list does not include the numerous rival Pilbara miners in need of a transport solution.
Transport operators and pension funds are considered to be more likely participants in the sale process.
American railway operator Genesee & Wyoming has previously listed the Pilbara as a place it may look for growth, and the company formerly known as QR National - Aurizon - is also investigating transport solutions in the Pilbara.
A sell-down of Fortescue's railway is of symbolic significance given founder Andrew Forrest's long campaign to allow third-party access onto the Pilbara railways of BHP Billiton and Rio Tinto.
The prospect of allowing third parties onto Fortescue's own railway also signifies that the company's round of divestments is heating up, after the recent sales of a power station and part of Fortescue's joint venture with BC Iron.
Apart from trying to reduce a debt pile that has grown beyond $US10 billion, Fortescue is trying to free up enough cash to restart the Kings expansion project that was halted amid a debt crisis in September.
That restart is expected to be announced within days.
Confirmation that a sell-down was being considered helped lift the Fortescue share price by 16¢ to $4.47, and provided a similar boost to the share price of fellow Pilbara exporter Atlas Iron, which rose 6¢ to $1.62.
Atlas has significant growth assets in the Pilbara that will require a railway solution, and the market appeared to interpret Fortescue's infrastructure sale as the first step in Atlas eventually exporting iron ore via the Fortescue railway.
Atlas managing director Ken Brinsden told Businessday that Atlas was not involved in the present round of talks with Fortescue.
"We are not actively involved in talks with Fortescue about this sale process, but the door has always been open at Fortescue to discuss haulage and that's as true today as it ever was," he said.
Atlas has a separate study underway with Aurizon into a multi-user railway in the Pilbara, the results of which are expected within the next two months.
Macquarie Capital, which recently advised Fortescue on the sale of its power station, is involved in the process, along with Lazard
"Our focus is on completing the alliance study with Aurizon but we are open to engaging with any parties that can provide access to infrastructure on agreeable terms," she said.
InvestSMART FORUM: Come and meet the team
We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free