NRW Holdings locks in $620 million WA rail deal

In the next move to bring the Roy Hill iron mine’s ore to port, NRW Holdings (ASX: NRH) has been awarded the contract to build the rail line 330 km to Port Hedland, where Hancock Prospecting’s new storage and shipping facilities are being constructed. The company signed for the rail project with Samsung C&T Corporation, which itself won the $5.59 billion contract to construct the whole mine, rail and harbour infrastructure in March this year.

The $620 million private rail project will bring ore to dedicated facilities to then be sent overseas from the newly dredged harbour Hancock Prospecting is creating. While other iron ore miners like Brockman Mining (ASX: BCK) and Fortescue Metals Group (ASX: FMG) spent many years trying to get their iron ore to port on other mining companies’ rail lines, Hancock Prospecting had the advantage of having billionaire Chairman Gina Rinehart as its chairman, so it will go straight into production once the rail line is in place.

Once complete, the rail will have five trains, allowing total transport capacity of about 150,000 tonnes per day. Of this, Hancock Prospecting indicated that some of the capacity could be used for third-party mines that have no direct port access of their own. The trains will be automatically controlled from a remote operations centre based in Perth.

Preliminary construction will start in September, and is projected to be completed by January 2015. During construction up to 1,500 personnel will be employed.

Hancock Prospecting owns 70% of Roy Hill Holdings, the company set up for the mine, and the other 30% is owned by two Korean companies, steelmaker Posco and STX Group, Marubeni from Japan, and Taiwanese China Steel. All three of those countries want to secure ore for their steelmaking industries, so apart from just competing on the open spot market, more and more they are coming to the ore source, and buying into the mine projects.

Foolish takeaway

Up until August, the Australian mining industry seemed to be slipping because of lower overseas demand and slumping commodity prices. Yet we as reported last week (“Weaker Aussie dollar pumps up exports”), export shipments were telling a different story.  Yes, miners were getting less for each tonne, so they went for volume, volume, volume.

Steelmakers still need to produce, and when they run low on supplies, they have to order more, and when they have to compete more on procurement, then ore prices will go up accordingly. Always study the business cycles of mining companies and what affects their pricing.  You can save yourself a lot of money and time knowing when to avoid it, and when the market is turning around.

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

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