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Roles switch as Fortescue denies rail access to Brockman Mining

The WA railway access battle rages on for iron ore miners trying to get their ore to port for shipping. However, this time the roles have changed.

For many years, Fortescue Metals Group (ASX: FMG) has been the underdog, railing against the big miners BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO) for access to its rail lines to get its ore delivered to Port Hedland and out to the overseas markets. The legal row began back in 2004 when Fortescue petitioned for access to the Hammersley rail line since it had none of its own. Rio Tinto resisted this move by arguing that the rail line was an integral part of its production line for ore, and opening access would disrupt its business. The dispute was in the courts for so long that Fortescue ended up building its own line to the port.

In building it, the company said that it would be a champion for other small miners who have resources but no way to get it to market, and give access to those which negotiate with them. Brockman Mining (ASX: BCK), the Hong Kong-based owner of Brockman Resources, is one such miner who started talks with Fortescue to access its TPI rail line about four years ago.

Even now the two companies have not reached a deal, and Brockman Mining has gone to the Economic Regulation Authority (ERA) in WA to win a ruling to allow it to run its trains on the TPI line. This is where the negotiations are diverging. Fortescue offers access, yet for it, that means hauling another miner’s ore on its trains.

Brockman Mining wants to have the ability to manage its own rail transport, and has recently been in talks with Aurizon Holdings (ASX: AZJ), formerly known as QR National, the Queensland rail company. They are in the first stages of plans, but Aurizon could either build rail spurs along existing lines for increased rail transport, or potentially a completely new rail line could be built for Brockman Mining.

Fortescue says it is willing to negotiate, but it would resist those companies seeking rulings from regulatory bodies. Brockman Mining CEO Russell Tipper said, “I thought four years of negotiations would have been a fair go of trying to reach a commercial accommodation without having to resort to the access process.”

Foolish takeaway

This is an age-old problem in mining — you have the resources, but can’t get them to market. As a result, many times mines lay fallow until either commodity prices go up far enough to make it worthwhile to mine and ship, or delivery access is economically feasible to do it. Invariably, mines are in desolate, undeveloped areas that have no infrastructure, so the mining company has to foot the bill for roads and rail just to get to market.

Negotiating with other iron ore miners doesn’t help either because they are competing for port capacity. If one has trouble getting its ore to market, the other will be less inclined to help its competitor take up that limited space.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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