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Fortescue Metals Group has won a court battle that could open Rio Tinto's and BHP Billiton's tightly-held rail lines in the remote iron ore-rich Pilbara region of Australia to rival mining companies.
The High Court ordered today that appeals be allowed to an earlier Competition Tribunal ruling that had overturned a government decision to allow Fortescue access to Rio Tinto's two lines. The case has dragged on for years, during which time Fortescue has developed its own rival line to export its ore.
The decision comes as spot prices for the steelmaking commodity abundant in the arid north of Western Australia slump and mining companies struggle to contain costs and remove capacity bottlenecks from their operations.
Fortescue's shares were placed in a trading halt today as the company continued to negotiate changes to the terms of its loan facilities with its banks, and after investor concerns over its debt had a day earlier dragged its shares down 14 per cent to a fresh three-year low.
Rio Tinto and BHP have refused access to their railways, arguing that the lines are integral to their operations and that it would be costly to allow others to run cargo on them. Both companies continue to ramp up production of iron ore in the Pilbara, and would fight against losing export capacity to rivals.
The High Court has ordered the Competition Tribunal to again rule on Rio Tinto's appeal against a 2008 decision by Federal Treasurer Wayne Swan to give third parties access to its Hamersley and Robe lines for 20 years to 2028. The tribunal had previously ruled that Fortescue wasn't entitled to use the Hamersley line and could only access the Robe line for 10 years.
Fortescue welcomed the decision and said it was confident the tribunal would this time open the lines to other companies. However, it added that the decision didn't affect its current expansion plans, which make use of its existing rail infrastructure.
Neville Power, chief executive of Fortescue, said in a release that open access to the lines would help smaller miners develop mineral deposits "without duplicating expensive and unnecessary rail infrastructure."
Fortescue first applied to the National Competition Council in 2004 for use of part of BHP Billiton's Goldworthy and Mount Newman lines, which terminate at Port Hedland. In 2007, the company applied for access to Rio Tinto's Hamersley line that runs to Dampier and a year later for access to the Robe line to Cape Lambert.
The Treasurer confirmed that the Goldworthy, Hamersley and Robe lines should be opened, but never made any decision regarding the Mount Newman line. BHP and Rio Tinto both challenged the decisions, which prompted a review by the Competition Tribunal and the case eventually made its way to the Full Court of the Federal Court.
The High Court today ruled that the Full Court had been wrong to endorse the tribunal's earlier ruling. As a result, it said the matter should be remitted back to the tribunal for it to re-determine the matter.
Rio Tinto said in a statement following the decision that it was pleased that the High Court had agreed with its argument that use of its lines by others should be measured against the economic cost to it and not just the cost of building the lines themselves.
It said its integrated operations in the Pilbara would be severely impacted if third parties were allowed to run trains on its rail system. "As the tribunal noted, the potential disruption and diseconomy costs would dwarf whatever benefits might exist in permitting third party access," it said.
A spokeswoman for BHP declined to comment on the matter.
The High Court, however, ruled out any further consideration of BHP's Newman line for third party access, removing grounds for Fortescue to appeal for access.
This article first appeared on www.theaustralian.com.au
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