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Fortescue spurns Brockman

Fortescue Metals Group (ASX:FMG) has knocked back Brockman Mining’s request to share its infrastructure, saying it simply doesn’t have enough rail capacity for both iron ore miners.

Australia’s ‘third force’ in iron ore, says it designed, constructed and exclusively funded subsidiary, The Pilbara Infrastructure (TPI), entire railway system, to allow the line to carry 155 million tonnes of iron ore per year. That also happens to be Fortescue’s targeted production capacity, meaning it will utilise 100% of the rail capacity, expected to be in 2014.

Fortescue now says that unless expansion or extension of TPI’s railway, there’s no room for Brockman. Fortescue also said that adding Brockman to its railway line would result in material inefficiencies across its track scheduling and maintenance program, as well as lost iron ore sales.

The junior miner wants to transport 20 million tonnes from the Pilbara to Port Hedland, but railways can cost billions to build, and it’s unlikely that the company could fund the infrastructure on its own. Earlier this week, Brockman signed a memorandum of understanding with Aurizon (ASX:AZJ) to construct and operate an independent rail line to transport its ore. Brockman has also announced an agreement with Flinders Mines (ASX:FMS), that could see the pair collaborate on infrastructure and transport, as well as iron ore production.

But without the support of other miners, Brockman’s railway is likely a no-goer. BC Iron (ASX:BCI) managing director Morgan Ball said that without the support of a larger miner such as Atlas Iron (ASX:AGO). Atlas is also looking for a way to transport its iron ore to port, and may be negotiating with Fortescue as well as talking to Aurizon.

With a number of rail lines already in the Pilbara, it would make common sense for junior miners to collaborate on infrastructure, or work with the major miners to expand their existing rail lines. They obviously can’t all build their own rail line, based on the capital cost as well as access to port infrastructure.

Foolish takeaway

For many years Fortescue wanted to gain access to Rio and or BHP’s existing infrastructure but was unsuccessful and therefore forced to build its own line. Now it appears the shoe is on the other foot, and it will be interesting to see what the junior miners can do, now that Fortescue has pretty much ruled out any miner sharing its rail line – unless they pay for the expansion.

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Motley Fool writer/analyst Mike King owns shares in BHP.

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