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Rail sale option for FMG
Rail sale option for FMG

Fortescue Metals Group could consider selling its rail infrastructure if iron ore prices do not recover, as part of the company's wave of debt-reducing asset sales.

Speculation was rife in investment banking circles yesterday that Fortescue was mulling selling its critical rail network as a "nuclear option" if iron ore prices did not improve and the company needed to raise more capital to protect its cash flow and operating assets.

In the Pilbara yesterday to speak to Fortescue's workers about the drastic job cuts made this week, chief executive Nev Power told _WestBusiness _ that Fortescue was not yet drawing up plans to sell the rail lines linking its mines to Port Hedland but would "consider anything and everything on its merits" if an approach was made.

"It's not something that's under consideration at the moment, but we are considering the sale of a number of non-core assets, and we would consider partnerships in a whole range of our assets as we've indicated a number of times," he said.

Sale of the rail network could yield billions for the under-pressure miner, sources say, though it would drive up future operating costs and would need approval of Fortescue's lenders. Fortescue's rail network could be relatively easily carved off from its iron ore operations as it is housed in a separate company, The Pilbara Infrastructure, and is covered by its own State Agreements.

With Fortescue only building to a 115 million tonne production rate in the near future, a third party such as QR National, Asciano or Brookfield could be interested in buying the assets as an alternative to building an independent rail network. While a full sale could take as long as a year to negotiate, a partnership arrangement to allow excess capacity to be used on the 155mtpa rated network could be negotiated more quickly, sources say. Provided Fortescue was guaranteed a return to its planned capacity in the future, and a future buyer agreed to commit capital for future growth, a sale or partnership may make at least short-term sense.

The move would also solve one of the region's long running issues, opening up a route to port for juniors with stranded assets.

Fortescue this week offloaded its Solomon power station for $US318 million, and speculation has arisen that accommodation camps and other mine site infrastructure such as airstrips are next to go.

"We'd consider anything and everything on its merits, but that's no different today than it was yesterday or will be next year," Mr Power said. "We are a very flexible and focused company, but our strategy has been to build very high quality infrastructure, that is the core to our business."

While no new job losses were announced on Fortescue sites yesterday, Ausdrill became the latest contractor to lose work.

Managing director Ron Sayers said a three-year drilling contract at the Solomon Hub had been cut, while eight trucks and nine rigs out of 25 had been taken out of service at other Fortescue mines.

Mr Sayers said the number of job losses was not clear yet.

He said the loss of work would cost the mining services provider about $50 million a year in revenue. Ausdrill's forecast of revenue growth this fiscal year would probably be cut from 15 to 10 per cent.