BHP Billiton and 12 Other Coal Miners Bid A$4.85 Billion for Australian Railroad Network

Strategic Insights -

BHP Billiton Ltd. and 12 other major coal miners in Australia have joined forces to bid a combined A$4.85 billion ($4 billion) for the country's largest coal railroad network, outbidding the planned initial public offering (IPO) of the assets. The coal producers, who consider themselves the "natural owners" of the railroad assets, aim to boost coal shipments from Australia, the largest coal exporter, to meet demand from Asian steel mills and benefit from higher prices. Queensland state Premier Anna Bligh valued the freight assets at A$7 billion in June last year.

Key Takeaways:

  • The coal miners, including Rio Tinto Group, Peabody Energy Corp., and BHP Billiton Ltd., bid A$4.85 billion ($4 billion) for the Australian railroad network to boost coal shipments and avoid the planned IPO.
  • The network, managed by Australian Rail Track Corp., has the capacity to transport 185 million metric tons per year, generating A$1.3 billion in sales in 2008 and 2009.
  • QCIG, the Queensland Coal Industry Rail Group, has committed to expanding the network and arranged acquisition loans of A$1.35 billion and A$2.05 billion for capital spending.
  • The coal companies are incentivized to invest more in the track, maintain it better, and operate it better to ensure smooth coal transportation and meet growing demand from Asian steel mills.
  • Rail constraints in Queensland's Bowen Basin are expected to persist for up to two years, hindering export growth, according to an independent report by Deutsche Bank AG in March.
  • The sale of the railroad assets is part of Queensland's efforts to prop up its finances, which are forecast to be cut by A$15 billion over four years to 2012 due to the global recession.

Statistics:

  • The Australian railroad network handles 185 million metric tons per year.
  • The network generated A$1.3 billion in sales in 2008 and 2009.
  • The coal miners bid A$4.85 billion ($4 billion) for the network.
  • QLDG valued the freight assets at A$7 billion in June last year.
  • Rail constraints in Queensland's Bowen Basin are expected to persist for up to two years, hindering export growth.
  • The global recession is forecast to cut government revenue by A$15 billion over four years to 2012.

Sources:

  • Euclid Infotech Pvt. Ltd. (no date provided)
  • Queensland state Premier Anna Bligh (June 2009)
  • Nick Greiner, Chairman of the Queensland Coal Industry Rail Group (no date provided)
  • Andrew Harrington, Analyst at Patersons Securities Ltd. (no date provided)
  • Australian Rail Track Corp. (no date provided)
  • QRNational Coal (2008 and 2009 Annual Reports)
  • Deutsche Bank AG (March 2009)
  • Credit Suisse Group AG, Goldman Sachs JBWere, Merrill Lynch, Royal Bank of Scotland Group Plc, and UBS AG (no date provided)