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Australian miners bid for coal rail network

May 31, 2010

“A consortium representing many of the world’s biggest iron ore and coal miners has made a pre-emptive strike to buy the Australian state of Queensland’s coal rail freight network with a fully funded bid worth A$4.9bn (US$4bn).

The 13-member consortium – which includes BHP Billiton, Rio Tinto, Anglo American, Brazil’s Vale and Peabody Energy of the US – is trying to head off the state government’s plans for a 2010 initial public offering of QR National.

QR National – a business that includes coal and other freight networks, rolling stock, and a coal logistics business – plans to raise between A$2bn to A$3bn in a float that would give it a market value of about A$7bn.”

Source: Financial Times, May 26 2010

Observations:

  • Many parties see the offer as the best option for the government. Queensland Resource Council says: “With uncertainty hanging over the world’s stock markets, the State has been given a gilt-edged opportunity to reconfigure its QR National asset sale plans while underpinning the future growth of its leading export industry.”
  • The offer of the consortium gives the government a 60%+ premium vs. an IPO. However, they will be left with a part of the company that will be harder to operate and sell.

Implications:

  • With this “offer the government can’t reject” the miners try to secure stable and cheap transportation from the mines to the ports. Problems might surface when new investments that specifically favour one of the consortium members need to be made to the network.
  • The offer can be seen as part of the trend of downward vertical integration in the mining industry. Vale currently is the best example of a miner with large assets in transportation (Brazilian rail network). Potentially, if shipping tariffs become a bottleneck, miners will start investing in seaborne bulk transport as well.
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