Fortescue sets a tough line in the Pilbara
Fortescue Metals Group has ramped up efforts to protect its treasured railway from Brockman Mining, accusing the junior of being "incapable" of funding its desire to export along the railway.
Ending a week of intense strategic positioning in the Pilbara iron ore industry, Fortescue sent a six-page argument to regulators on Friday outlining why Brockman should not be allowed onto its railway under third party access laws.
The access stoush is one of several crucial transport transactions that are unfolding in the iron ore sector, which has entered a pivotal phase now that iron ore prices have gone past their peak.
Speaking through its wholly owned infrastructure subsidiary on Friday, Fortescue extended its previous arguments by saying there would be no spare capacity on its railway within a year unless significant amounts of money were spent building extra loops and other extensions into the track.
"In order to determine whether any extension or expansion is technically, or indeed economically feasible there is a significant
amount of work at considerable
cost that needs to be undertaken," Fortescue said.
Fortescue said Brockman merely wanted "the option" of using its railway at some time in the future, rather than certain use, which was at odds with the spirit of the third party laws. Fortescue also fired a shot across the bows of the regulators, demanding access to evidence used in all future decision-making "so as to minimise any potential administrative errors".
The debate comes at an awkward time for Fortescue, which is trying to sell a stake in its rail and port assets under a transaction that is likely to see external companies use its railway in the future.
Fortescue expects to earn several billion dollars by selling the minority stake.
Any buyer, however, is likely to want their investment to grow, thereby requiring more and more iron ore to use the railway in future years.
The industry is also closely watching whether Gina Rinehart's Roy Hill project persists with plans to build its own railway to Port Hedland, or favours a lower-cost transport solution of using another company's existing railway.
Friday's missive from Fortescue followed several days of positioning by Brockman, which on Wednesday signed a deal with transport provider Aurizon to supply whichever transport solution the company eventually chooses for its exports.
That deal would theoretically mean Aurizon would build spur lines onto Fortescue's line should Brockman win its third party access application.
On Thursday Brockman announced a co-operation agreement with fellow Pilbara junior Flinders Mines that will lead the pair to progress their iron ore projects together to ensure cost savings and economies of scale.
Executives from Brockman and Flinders said the agreement could ultimately see the two companies conduct a full financial merger, among other options.
The climate of haste and tension in the Pilbara reflects the state of the iron ore industry, where prices are widely expected to fall in the years ahead, forcing companies to rush their product into the market as quickly as possible.
Yet despite the fading prices and sense of desperation, iron ore remains Australia's most lucrative export industry.
It is always warm in the Pilbara, but the past week has showed things are heating up more than usual.