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Aurizon Holdings Ltd hits new all-time high

Aurizon Holdings Ltd (ASX: AZJ), the rail transport company, formerly known as QR National, will be reporting its FY2014 half-year results this week. Progress over the last 12 months can also be seen but from the December quarterly report. It hit $5.10 on Friday, a new all-time high.

December quarter coal volumes were a record 56.2 million tonnes, progressively getting higher each quarter, and 11% higher since the December 2012 quarter. The coal segment makes up about 51% of total revenue.

Iron ore volumes saw a jump up 30% to 7.8 million tonnes and although the segment revenue may be less than freight, its return on sales were 27.1% in full-year FY2013.

That’s why the company wants to expand its rail network up to the Pilbara and get more of the high sales margin business.  They have negotiated with iron ore miners like Brockman Mining Ltd (ASX: BCK) about the possible establishment of a new rail line that could open more haulage for junior miners, but the company would need substantial volumes to make such a venture worthwhile.

The kicker that the company has is its 2,670km of open access rail network. The network segment had $424 million in underlying EBIT on $1.05 billion in revenue. This “below the rail” income comes from other rail transporters paying for the use of the rail network.

Over the next half we can probably see more coal haulage as the major miners like BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO) and New Hope Corporation (ASX: NHC) are ramping up production.

Coal prices have not been trending high like iron ore, so the miners are raising volumes to keep up earnings. Being the major ore transporter to coastal ports in QLD sends a lot of business Aurizon’s way. Asciano Ltd (ASX: AIO) has a greater market share of coal transport in NSW and wants to expand into QLD more.

Foolish takeaway

Once a state-owned asset and company, its extensive network and high demand for its shipping gives it advantages that investors like to see in a business. It isn’t a monopoly, but the natural barrier to entry is the prohibitively high cost of developing similar infrastructure. Even competing rail transport businesses have to pay Aurizon for rail usage.

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

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