December 29, 2015

Aurizon stops work on Pilbara iron-ore project

Written by  Mark Carter
  • Print
  • Email

AUSTRALIAN railfreight operator Aurizon has announced up to $A 240m ($US 174.5m) in anticipated write-downs for its half year results which are due in February 2016, and says it will cease all development work on its West Pilbara Iron Ore Project (WPIP) joint venture.

The decision not to undertake any further work on the definitive feasibility studies for the project for which Aurizon would provide rail and port infrastructure follows a recent meeting of WPIP participating companies' Aurizon, Baosteel Resources, Posco and AMCI.

The company says it is now actively considering the implications of this decision, particularly in relation to the impact on its employees and the carrying value of the project. The current capitalised value of the investment in WPIP via Aquila Resources is $A 91m in addition to $A 80-85m of capitalised project costs. Aurizon says it will update the market further on the situation in its half-yearly results.

In light of deteriorating global demand for thermal and coking coals, Aurizon has also revised its expectations for coal volumes in the 2016 financial year to 202-212 million tonnes from 210-220 million tonnes previously, a reduction of approximately 3-4%.

Earnings before interest and tax (Ebit) for the half year are likely to be in the range of $A 390m to $A 410m, roughly 20% down on analysts' current forecasts.

The company says it has undertaken a review of the value of its asset portfolio and will recognise a total non-cash impairment charge in the range of $A 215-240m for the six months ending December 312015.

The impairments relate to the value of Aurizon's investment in Aquila Resources, uncertainty over the timing of coal mining expansion in the Galilee Basin, and surplus rolling stock as a consequence of productivity and efficiency improvements.

The company expects to scrap or write-down to net realisable value a further 124 locomotives and 1343 wagons, representing approximately 5% of the capital value of its rolling stock assets.

Get the latest rail news

IRJ Rail Brief newsletter covers global railway news