* Brookfield, Canadian pension funds seen as potential
* Fortescue could raise as much as $5 billion for a 49
percent stake - analysts
* Fortescue looks to pay down debt
* Atlas, Flinders Mines could win access to Fortescue rail
* Fortescue shares up 3 pct on iron ore price jump
By Sonali Paul
MELBOURNE, Dec 17 Fortescue Metals Group
is in talks to sell a minority stake in its Australian
port and rail assets, in a move that would let it pay down
billions of dollars in debt and that could open up access to
rival miners whose iron ore is stuck in the ground.
Fortescue's rail line is considered its prized asset as it
is the only iron ore railway built in Western Australia to
challenge the stranglehold of the iron ore giants in Western
Australia, Rio Tinto and BHP Billiton, who
have not allowed other miners to use their rail lines.
Australia's No.3 iron ore miner could raise as much as $5
billion for a 49 percent stake, analysts estimate, but it would
depend on how a deal is structured and what rate another owner
could charge Fortescue and others to access the rail and port
servicing the iron-rich Pilbara area.
Smaller iron ore miners and aspiring producers, like
billionaire Gina Rinehart's Roy Hill project and Atlas Iron
, could be keen to use Fortescue's rail line rather than
struggling to raise funding to build new lines.
Fortescue said it has received strong interest from
strategic and financial parties for the port and rail assets,
housed in a unit called The Pilbara Infrastructure (TPI), which
had led to talks with a small group of investors.
"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 firm did not disclose who it had been talking to but
potential buyers could include pension funds such as Canada
Pension Plan Investment Board and Ontario Teachers' Pension
Plan, both of which have previously invested in Australian
Another possible interested party is Brookfield
Infrastructure Partners, whose Brookfield Rail arm runs
rail lines in Western Australia. A Brookfield spokeswoman was
not immediately available for comment.
Talks are unlikely to result in a swift deal, due to
complications over charges for port and rail use.
"JEWEL IN THE CROWN"
A deal would help Fortescue 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.
Analysts said shareholders would be much more comfortable if
Fortescue cut its $12 billion in debt to pare its interest
costs, while pushing ahead with its expansion to 155 million
tonnes a year, which will help lower its average cost of output.
"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.
However, analysts also raised concern that a sale of the
infrastructure assets would result in higher costs as Fortescue
would have to pay a tariff to use the port and rail which would
be higher than its current cost of around $5 a tonne.
"Why would you sell the jewel in the crown?" said Glyn
Lawcock, an analyst at UBS.
"I'd prefer to see an asset sale done on the mines than
infrastructure, because you're baking in higher costs."
If Fortescue's rail was opened to other miners, a company
like Atlas Iron, which needs access to a rail line to get to its
production goal of 46 million tonnes a year, could avoid having
to build its own railway, which it is studying with rail
operator Aurizon Ltd, formerly called QR National.
A senior Fortescue executive said recently 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," suggesting that Fortescue may not retain control over
port and rail operations under the plan being discussed.
There has been speculation that Rinehart's Roy Hill iron ore
project and Atlas may be interested in buying stakes in TPI, but
miners have little history of cooperating in the Pilbara.
Rinehart and Fortescue founder Andrew "Twiggy" Forrest have
never been able to reach an agreement to share infrastructure,
industry sources have said.
Her firm Hancock Prospecting, a 70 percent owner of the $10
billion Roy Hill project that aims to produce 55 million tonnes
a year of high quality iron ore, has repeatedly said it wants to
build its own rail line.
Other firms who may need rail access include Flinders Mines
, BC Iron and Brockman Mining.
Fortescue has appointed Lazard and Macquarie Capital to
advise on the infrastructure stake sale.
Fortescue's shares rose 3.1 percent to A$4.45 on Monday,
with iron ore prices trading around a five-month high. Other
iron ore producers like Atlas and BC Iron, were also up
between 2 and 4 percent.