Western Australia’s economic regulator has set a maximum price for access to Fortescue Metals Group’s port and rail assets, meaning the infrastructure access conflict between Fortescue Metals and iron ore hopeful Brockman Mining is moving in the right direction.
The rail and port access conflict between Fortescue and Brockman could be solved with two long arbitration meetings as the cost setting by the regulator still did not abate the conflict between the two companies.
Fortescue’s rail and port assets are held in The Pilbara Infrastructure, a fully owned subsidiary.
The economic regulator has set a maximum price to be paid to TPI at $316.9 million a year. That is 45 per cent below Fortescue’s proposed maximum price in May, SMH reported.
When Brockman asked for access to the Pilbara rail line, TPI gave a floor cost of $73.4 million and a ceiling cost of $575.6 million.
None of the parties are able to specify what the $316.9 million maximum cost would mean on a “per tonne of iron ore” basis.
It also fixed a minimum price of $84.7 million a year and the companies have to negotiate a price between the two figures.
But Fortescue is still not ready to discuss the final cost with Brockman because it felt Brockman had not established it had the financial capability to construct the Marillana iron ore venture.
Fortescue chief executive Nev Power criticised Brockman’s financial capability.
“Fortescue shareholders are not obligated or required, under any agreement or legislation, to subsidise or risk wrap third party projects that are uneconomic,” he said.
Fortescue is also unsure if Brockman has the extra capacity on the railway for it to use.
And Fortescue does not have to negotiate with the junior miner until it is guaranteed these problems are solved as per WA’s third party access laws.
But Brockman has argued it is not in a position to assess the financial position of the venture until it is clear on the expenses of its transport solutions.
Under the circumstances of continuing conflict Brockman could ask for an arbitrator to assess whether its financial situation is strong enough to insist Fortescue start price negotiations.
If negotiations take place but do not result in a consensus, a second arbitrator will be called on to decide how much Brockman should pay for infrastructure access.
WA Premier Colin Barnett said resource companies fighting over sharing infrastructure is one of the biggest obstacles to keeping projects within budget and on time.
He said the Department of State Development spent more time dealing with conflicts between mining companies than with regulatory delays.
Brockman head Russell Tipper is happy to have a costing structure.
“This framework further enhances Brockman’s ability to demonstrate the financial viability of its project to progress access negotiations.”
Brockman Mining signed a supply, infrastructure cooperation agreement in the Pilbara with Flinders, saying they will work together on a transport solution that will get their product to market.
Fortescue Metals Group’s infrastructure arm was criticised by Flinders mines for being secretive over its costing details.
Flinders Mines said costing estimates by The Pilbara Infrastructure is ‘difficult to understand’
They signed a three year agreement with Aurizon that will see the rail operator develop and operate rail and port infrastructure for the company’s two Pilbara iron ore projects.
Fortescue moved to downgrade its iron ore production targets and pushed back the timing of its asset sales.
Investors urged the company to decrease its $US10 billion debt, leading the company to offload its minority interest in its port and rail assets, which are expected to deliver $3 billion to the company.