Aurizon under scrutiny from fund manager

A fair accusation that can be levelled at many company management teams is that they don’t review decisions regarding the expected returns from allocating owners’ capital rigorously enough.

So far, rail freight operator Aurizon (ASX: AZJ) would appear to be one of the few companies to get a tick for focusing on achieving acceptable returns on invested capital to shareholders. But just to remind CEO Lance Hockridge, Philip Green, who represents The Children’s Investment Fund’s 11% shareholding in Aurizon, has been reported in the Australian Financial Review as warning Aurizon “against building a new iron ore network in Western Australia’s Pilbara region, concerned that falling commodity prices will make it impossible to guarantee returns on the huge investment required.”

Aurizon has previously been touted as a buyer of a share in Fortescue Metals’ (ASX: FMG) rail infrastructure assets. However more recently it appears Hockridge’s focus has moved from partnering with Fortescue to instead building his own railway track with the support of smaller Pilbara miners including Brockman Mining Australia (ASX: BRM).

With the cost of a move into the Pilbara rumoured at $10 billion, this is not a move shareholders could afford to get wrong.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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