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Australia's Fortescue Says May Sell Stake in Port, Rail Assets

Sunday, 16 Dec 2012 | 6:39 PM ET
Fortescue Metals is Australia’s third largest miner of iron ore with a market cap of $21.2 billion.
Photo: Fortescue Metals
Fortescue Metals is Australia’s third largest miner of iron ore with a market cap of $21.2 billion.

Australia's no.3 iron ore miner, Fortescue Metals Group, is in talks to sell a minority stake in its multi-billion dollar port and rail assets as it looks to cut debt and build new mines in a world of weaker iron ore prices.

Analysts estimate Fortescue could fetch as much as $5 billion for a 49 percent stake, but that would depend on how a deal is structured and what rate another owner could charge companies for access to the rail line.

Fortescue said it has received strong interest in the business from strategic and financial parties in the port and rail assets, housed in a unit called The Pilbara Infrastructure (TPI), which has led to talks with a small group of investors.

(Read More: Australia's Mining Boom Peak Within Sight: NAB)

"They are also attracted by the fact that TPI is the only provider of third-party infrastructure in the Pilbara and the logistics chain is fully operational. This provides an outstanding investment opportunity," Fortescue Metals Chief Executive Nev Power said in a statement.

The company is looking to accelerate paying down debt after recently putting the brakes on its ambitious iron ore expansion, refinancing $5 billion in debt, and selling power and mine assets after iron ore prices hit a three-year low of $87 a tonne in September. Prices have since rebounded to $129.

"If you could see them take $2-$3 billion off their balance sheet, you could see a much easier path to complete their expansion and get to 30-40 pct gearing by 2014 on fairly conservative iron ore prices," said Chris Drew, an analyst at RBC Capital Markets.

A senior executive had recently said the port and rail assets are "incredibly valuable" and stressed the company would only sell a stake in the business if it could retain total control over the operation.

Power said on Monday the sale would only go ahead at "full and fair market value and on the basis that the current efficiency of infrastructure and mining operations are not impacted."

There has been speculation that billionaire Gina Rinehart's Roy Hill iron ore project and Atlas Iron may be interested in buying stakes in TPI.

However, Rinehart's Hancock Prospecting, a 70 percent owner of the $10 billion Roy Hill project, has said it wants to build its own rail line.

Atlas Iron, which needs access to a rail line to get to its production goal of 46 million tonnes a year, could seek access to Fortescue's line if it opts against building a rail line under study with rail operator Aurizon, formerly called QR National.

(Read More: Why Australia Should Break Its 'Surplus' Promise)

Analysts said pension funds and infrastructure companies, like Brookfield Infrastructure Partners, whose Brookfield Rail arm runs rail lines in Western Australia, could be interested in a stake in the port and rail assets.

Fortescue has appointed Lazard and Macquarie Capital to advise on the transaction.

Fortescue's shares, which last traded at A$4.33, have inched up 0.9 percent so far this year, heavily lagging a 13 percent gain in the broader market as it has been hit by a slowdown in its sole customer, China.

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