BHP’s secret Port Hedland deal

It is believed that a secret agreement was made between BHP Billiton (ASX: BHP) and the Port Hedland Port Authority in the mid-2000s that would allow the mining giant to influence which companies could use the port for exporting commodities.

The Australian Financial Review reported that the deal, which is known as the Harriet Point Agreement, could play a major role in the future regarding which companies are allocated port capacity, based on whether or not their presence at the port would damage BHP’s efforts to increase its iron ore production.

BHP currently has plans to ramp up production of the steelmaking ingredient to 240 million tonnes per year (with an aim of 212 million tonnes this year). Whilst it is understood that the miner has no right to veto any attempted access to the port, it has the ability to influence and urge the port authority to reject access if it believes it could affect its expansion plans.

According to the report, the Western Australian government is exploring ways to open up access to the infrastructure, which would allow for greater production from second-tier iron ore miners. Meanwhile, Fortescue Metals Group (ASX: FMG), which also utilises the port, stated that it believes Port Hedland’s capacity of 495 million tonnes “substantially underestimates” its actual potential export capacity.

The AFR also revealed last week that both Atlas Iron (ASX: AGO) and Brockman Mining (ASX: BCK) were at risk of losing their allocation at Port Hedland unless they can meet their infrastructure development goals. Both are seeking a rail provider, such as Aurizon (ASX: AZJ) to enable them to do so.

Port Hedland, which is Australia’s busiest port and accounts for 20% of global iron ore exports, achieved record exports in September of 28.96 million tonnes for the month.

Foolish takeaway

With the price of iron ore remaining much stronger than most analysts had forecast, shares in the commodity’s miners have also increased significantly. However, there are still strong headwinds facing the sector that could drag shares down at any given time. Before investing in the industry, investors should ask themselves whether the risks are worth the potential benefits that could be realised.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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