New rail lines could kill iron ore price: UBS

The new rail lines under construction in the Pilbara could damage the iron ore price and threaten the existence start-up projects like Gina Rinehart’s Roy Hill mine, according to UBS analysts.

As part of expansions in the Pilbara QR National has teamed up with Atlas Iron and Hong Kong-based Brockman Mining (formerly Wah Nam Holdings) to propose a new rail line, The Australian reports.

Rinehart’s Roy Hill Holdings also has plans to build a new rail line to service the Roy Hill mine.

But UBS analyst Glyn Lawcock said combined with expansions from BHP Billiton, Rio Tinto, and Fortescue Metals Group, the new rail developments could threaten the existence of the very mines they planned to service.

"The additional potential supply that Atlas, Hancock and Wah Nam could provide is a negative to the iron ore trade and this ultimately leads us to a view that developing rail infrastructure could in fact make these aspiring projects less economic due to lower margins," he said.

"These new entrants could effectively become the top of the cost curve . . . which effectively sees these new entrants generate a zero (free cashflow) margin."

Atlas Iron managing director Ken Brinsden told The Australian his company was standing by its decision to explore a potential rail development with QR National.

Brinsden said Atlas was not constraining its view to the “classic iron ore infrastructure model” and had already made innovations in the way it shipped its product.

UBS has predicted a long-term iron ore price of $US72 at a US dollar exchange rate of 80c.

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