Miners urged to renegotiate rail contracts

Coal and iron ore miners could continue to cut costs by squeezing transport contracts for haulage, a new report from Macquarie has observed.

An announcement from Aurizon last week showed the company was open to renegotiating near-term contractual relief on rail haulage in exchange for contract extensions and other assurances of “longer-term security to Aurizon”.

"We consider this announcement by Aurizon as the start of the squeeze on the final component of miners cost structure that has not moved: infrastructure," Macquarie said.

Macquarie forecast the possibility of cost cutting at an average of $3.30 up to $5 per tonne, in the event of a reduction of rail fees by 25 per cent.

The “take or pay” contracts struck with haulage operators during the mining boom have a destructive effect on smaller miners who continue to pay for haulage even in the event of reduced exports.

Macquarie estimated that take or pay contracts had gone from 20 per cent of company costs to as much as 50 per cent in some cases, an unsustainable situation which has prompted Macquarie to call to allow miners to end their contracts at minimal cost, or reduce rates and extend contracts.

RBC Captial Markets has also spoken on the haulage issue, suggesting a threatened outlook for rail operators like Aurizon and Asciano that are so widely exposed to the coal market, SMH reported.

RBC said the Queensland based Aurizon was at greater risk as one third of its haulage (70 million tonnes) was for speculative or unrated customers.

Aurizon shares have dropped nearly 35 per cent in value since early December, going from $5.62 down to $3.70.

Aurizon fell 80 cents over December 22 to 23 after the company admitted deteriorating iron ore and coal prices had adversely impacted the business, with rail coal volume expected to be 3-4 per cent below guidance in the 2015-16 financial year.

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