Hancock Prospecting and POSCO to Build $6.3 Billion Railway Line in Western Australia

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Researched by Industrial Info Resources (Sugar Land, Texas)--Metals and mining company Hancock Prospecting Pty Limited (Perth, Australia) and Pohang Iron and Steel Company (NYSE:PKX) (POSCO) (Pohang, South Korea) have received approval from the Western Australian government to proceed with the construction of a railway line in the region. The $6.3 billion, 300-kilometer railway network will link its proposed Roy Hill mine to Port Hedland, and transport iron ore from the mine to north Asian countries.

Roy Holdings (Perth), which is the joint venture company, will undertake construction of the project. POSCO and Hancock Prospecting hold 3.75% and 95% stakes, respectively, in the mining and railway project. As part of the project, the joint venture proposes to build berths; stockyards at Boodarie; access corridors; train unloaders; and inner-harbor infrastructure. The railway line also will provide connectivity to small miners in the region. Construction is expected to begin by middle of next year. The project will provide employment to 1,500 people during the construction phase and 750 permanent jobs on commencement of operations.

POSCO relies heavily on imported iron ore to fulfill raw material demand. In January, after discussions with Hancock Prospecting, the company announced plans to increase its stake in the Roy Hill venture to 15%. This will be performed in two phases: 3.75% in the first phase, followed by the remainder in the second half of 2010. The joint venture also will develop the Roy Hill mine deposit, which is owned by Gina Rinehart, the chairman of Hancock Prospecting. On commencing operations in 2014, the mine is expected to produce 55 million tons per year of iron ore. POSCO is likely to purchase 10 million tons per year of iron ore from the project. The remainder will be exported to customers in Asia. With the proposed hike in its stake in the venture, POSCO's guaranteed iron ore supply is likely to increase from 12.4% to 30%. The Roy Hill mine, which has reserves of 2.4 billion tons, is 120 kilometers from the model mining town of Newman.

Hancock Prospecting already has secured rights to utilize berths with a combined capacity of 30 million tons per year at Port Hedland. In January, in a bid to increase its stake in the venture, POSCO also offered to undertake dredging activities at the port. Last year, after spending nearly $87.7 million on the project, Gina Rinehart indicated that she was open to partnership with Chinese companies.

In a related development, media reports have indicated that Fortescue Metals Group (ASX:FMG) (Perth) is holding talks with Hancock Prospecting to explore possibilities of merging the railway line in Western Australia. Presently, in order to maintain spare capacity at the $8.9 billion Solomon mining project, Fortescue holds exclusive access to a railway line in the region. According to Nathan Littlewood, an analyst at Credit Suisse Group AG (NYSE:CS) (Zurich, Switzerland), although the merger looks distant, it could be a cost-effective and profitable move for both companies.

Hancock Prospecting discovered and began mining iron ore in 1955. The Roy Hill mine is the company's third mining project in Pilbara. Hancock Prospecting operates the Hopes Down mine in partnership with Rio Tinto Limited (ASX:RIO) (Melbourne, Australia) and is presently expanding the Hopes Down-4 mine, which is 65 kilometers from the site. Last year, the Hopes Down mine produced 20.6 million tons of iron ore.

Recently, Hancock Prospecting suffered a serious setback after a Supreme Court ruling stripped the company of its 25% stake in the Rhodes Ridge iron ore project. The mine, which has 3.3 billion tons in iron ore reserves, was being jointly developed by Hancock Prospecting, Wright Prospecting (Peppermint Grove, Australia) and Rio Tinto. The ruling, which was in favor of Michael Wright and Angela Bennet, came after a nine-year legal battle with Rinehart. The verdict will now increase Wright Prospecting's share in the project to 50%. Rio Tinto already holds a 50% stake in the project. Experts have observed that the decision may lead to a slump of $465 million in personal income and huge future earnings losses for Rinehart.

Gina Rinehart, the present Chairman of Hancock Prospecting, is the daughter of the late Lang Hancock, who was the founder and owner of Hancock Prospecting. In March, Forbes magazine named Rinehart as Australia's richest woman.

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