Fortescue told to change pricing structure

Transporting resources like iron ore is not easy and owners of railways deserve to be rewarded – don’t they?

Andrew Forrest, Chairman of Fortescue Metals Group (ASX: FMG), has been directed to change the way his company charges miners for the use of its Pilbara railway. Western Australian Economic Regulation Authority (WAERA) has told Fortescue to supply a new pricing structure for junior miners wanting to use the rail link following a disagreement with Brockman Mining (ASX: BCK).

Business Day says the railway is susceptible to requests for its use because “it was built after a third-party access law was introduced in WA in 2000”. Currently, no other miners pay to use the railway for a number of reasons.

BC Iron (ASX: BCI) currently uses the railway but its iron ore is moved under a joint venture agreement in which Fortescue transports, exports and sells the steel-making ingredient beside its own product.

Brockman is looking to control its own product from mine to buyer and that’s where the issue arises. Fortescue is happy to let other companies on the railway but says it deserves to be rewarded for the massive investment it took to put it there.

Perhaps Fortescue is right and investors should sympathise with the mining giant. After all, its debt is troubling and currently sits at 226% of equity. In addition, it’s shed 23% off its share price in the last 12 months alone.

Foolish takeaway

Fortescue wants a piece of smaller miners’ pie and will use its dominance in infrastructure to take advantage of its smaller counterparts — but not if the WAERA has its way. Brockman Mining has a market capitalisation of around $400 million compared to Fortescue’s $10 billion, but that shouldn’t allow it to be taken advantage of, particularly when our miners are facing very uncertain demand for their products.

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