Arrium pushes for rail line upgrade to improve exports
TAKEOVER target Arrium is urging federal authorities to begin upgrades to a stretch of national railway that links three capital cities and is crucial to the company's hopes of increasing its iron ore exports beyond current growth forecasts.
Arrium believes its iron ore business has been grossly undervalued in recent takeover offers, and converting export potential into official forecasts looms as the perfect way to convince suitors that its true value is much higher than the 88¢ per share offer that was lodged this week.
Under Arrium's current advice to the market, the company plans to be exporting at an annual ''run rate'' of 12 million tonnes by August 2013.
The company says it has a ''reasonable aspiration'' of exporting even higher volumes, but has not yet been able to quantify those into official market guidance.
Businessday has learned the main limiting factor on higher exports is a 412 kilometre stretch of railway between Port Augusta and Tarcoola in South Australia, which forms part of the national rail link between Adelaide, Perth and Darwin.
Arrium is one of numerous companies using the section of track to transport products to ports in South Australia and Darwin, and with just 13 passing loops, the section is running close to full capacity.
Arrium executive Greg Waters confirmed the company was lobbying the Australian Rail Track Corporation to consider building additional passing infrastructure to allow the section of track to carry heavier loads.
''They certainly know that it's getting close to capacity, they may have some other [ideas] they come back to us with. We are open to hearing that, but we haven't heard that yet,'' he said.
The ARTC is owned by the federal government, meaning that any expenditure is effectively funded by taxpayers. Businessday believes the cost of proposed works would be in the tens of millions of dollars, and there has been debate over how much money, if any, private users of the track should contribute to any future upgrades.
When asked about the prospect of railway users such as Arrium being asked to fund upgrades, a spokesman for the ARTC said the corporation took ''a commercial approach to funding future capacity requirements and works with industry on this basis accordingly''.
''ARTC is very conscious of the future demand on the rail corridor between Port Augusta and Tarcoola and is already investing approximately $16 million in re-railing of this corridor with much stronger 60 kilograms per metre rail which will support reliability for minerals and intermodal traffic,'' he said.
''ARTC will continue working on identifying future capacity enhancements and projects to meet minerals demand from industry in this important corridor.''
Mr Waters said Arrium was now trying to prove it could export at promised rates to convince the ARTC that a capacity upgrade was needed. But he stopped short of saying exactly how far beyond current guidance Arrium's iron ore exports could climb.
''It's not that we can go to 20 million tonnes, but can you do another million on top of [what we are already doing]? Maybe, so they are the things we are going to work through,'' he said.
Arrium's port at Whyalla will have an annual capacity of 13 million tonnes within a year, and the company believes its iron ore tenements are large enough to be confident that the current export guidance of 12 million tonnes could be lifted to almost match port capacity.
At current iron ore prices, such an increase in production and exports would be worth an extra $US120 million in annual revenue.
Arrium recently changed its name from OneSteel in a bid to highlight its growing iron ore export business.
The reporter visited Arrium's iron ore assets near Coober Pedy as a guest of the company.