SINCE QR National was privatised and rebranded as Aurizon in 2010, the former Queensland state government-owned business has chased expansion through organic growth by leveraging its extensive heavy-haul experience in Queensland's coalfields.

While the company invested heavily in developing its export coal rail network in Central Queensland both before and after privatisation, growth in export coal movements has slowed to some extent due to subdued global demand and open-access competition from rival Pacific National.
However, coal remains the centrepiece of Aurizon's heavy-haul operations with annual tonnages of around 200 million moved in recent years and a guidance range of 210 - 220 million tonnes for the 2014-15 financial year.

While there has been some loss of volumes in Queensland through competition on the 1067mm-gauge network, this has largely been offset by gains made in New South Wales on the Hunter Valley standard-gauge network.

Aurizon 1Since establishing its Hunter Valley operations in 2005, traffic has grown to around 40 million tonnes per-annum (mtpa), equating to approximately 25% of the exports passing through the Port of Newcastle, the world's largest coal export terminal.

This figure is likely to rise. Coal is now moving from Maules Creek mine which was commissioned in March, and for which Aurizon has a contract with Whitehaven Coal to move up to 16mtpa.

To accommodate this and other coal traffic, several Australian Rail Track Corporation (ARTC) upgrades have been implemented to allow the operation of longer trains and to increase axleloads from 25 tonnes to more than 30 tonnes over the Liverpool ranges.

Aurizon ran its longest ever train on the Central Queensland Coal Network (CQCN) in March: the 2.3km-long formation consisted of 136 wagons hauled by four 25kV electric locomotives, two leading and two operating as distributed power at two locations in the consist.

The payload of 11,000 tonnes originated on the Blackwater rail system and was destined for the newly-commissioned Wiggins Island Coal Export Terminal (Wicet), with the "bedding" coal used to establish the stockpiles at Wicet as it geared up for its first shipments of export coal.

The current average payload for an Aurizon train on the CQCN is around 100 wagons carrying approximately 8500 tonnes of coal. However, the extended 136-wagon train will now become a regular feature of CQCN coal services.

Aurizon says it is drawing on the best available technology to introduce longer trains including new innovations in train marshalling, train handling, and track-train dynamics, while looking to reduce in-train forces.

Aurizon is also expanding its customer base. Speci­­­fically it secured a long-term, performance-based contract with Caledon Coal in April to haul up to 4mtpa of coal from their Cook mine in Central Queensland to Wicet.

Aurizon's Wiggins Island rail project represented an $A 867m ($US 692.1m) investment in a number of interdependent infrastructure projects across the North Coast Line, and the Blackwater and Moura railways to serve Wicet at the Port of Gladstone. The project will deliver a 30% capacity increase in coal tonnages transported from the southern Bowen Basin with the Wicet having a throughput capacity of 27mtpa.

However, plans for the Phase 2 expansion were suspended in 2014 along with a coal terminal project under development on the north Queensland coast at Dudgeon Point. Aurizon says that they are unlikely to progress in the short to medium term as forecast demand does not support an investment in incremental capacity. The company recorded an impairment of between $A 40m and $A 45m as a result of this decision with the prospects for other projects now looking grim.

Coal prices

A general sluggishness in the global economy and a weakening of thermal coal prices continue to create uncertainty for proponents of three major coal mines and associated rail infrastructure in the Galilee Basin region in northern Queensland.

Nevertheless the newly-elected state government has indicated that it is still keen for these projects to succeed, but has withdrawn the previous government's offer of a $A 1bn contribution towards port and rail infrastructure.

Aurizon is continuing to work with its partner GVK Hancock to develop rail and port infrastructure to link the proposed Alpha and Kevin's Corner mines in the Galilee Basin to expanded port facilities at Abbot Point. Collectively this proposed development is expected to deliver export capacity of 60mtpa. However, Aurizon acknowledges that subdued prices for thermal coal means that it could be several years before serious steps are taken to unlock the region's potential.

While coal has remained its primary focus, Aurizon is also exploiting iron-ore haulage opportunities in the Pilbara region of Western Australia, especially with junior to mid-size miners which are unable to gain access to the region's existing private rail networks.

Aurizon already has a number of junior iron-ore miners in its portfolio through its operations in the southern and midwest regions of Western Australia where it carries around 23mtpa on both narrow and standard-gauge tracks.

In conjunction with Brockman Mining and Atlas Iron, Aurizon completed a study in 2012-13 for a new independent standard-gauge iron-ore railway in the Pilbara to connect with dedicated port facilities at Port Hedland.

While the company has not totally abandoned its involvement, interest shifted to the West Pilbara Iron Ore Project (WPIOP) in mid 2014. Aurizon subsequently recorded a $A 19m write down in June 2014 for capital project costs associated with its previous involvement in the east Pilbara project. Atlas Iron also recently halted most of its mining operations in the region due to the collapse of the iron-ore price.

As part of its involvement in the WPIOP, Aurizon joined Chinese steelmaker Baosteel in a $A 1.4bn acquisition of iron-ore miner Aquila Resources in mid 2014, with Baosteel taking an 85% stake and Aurizon 15%.

The company also signed an infrastructure framework agreement with American Metals & Coal International (AMCI), Korean-based Posco and Baosteel for the provision of the rail and port infrastructure required to support the WPIOP in Western Australia.

The first stage of the project involves developing a new deep-water port at Anketell, near Port Hedland, and a 280km standard-gauge railway with capacity of at least 40mtpa, with the first exports optimistically targeted for 2017-18.

Aurizon is solely responsible for developing the rail and port infrastructure for the West Pilbara project. In parallel, Baosteel Resources, together with AMCI and Posco, will continue to define the mine studies and supply chain infrastructure.

In May 2015 Aurizon Holdings updated the market with regard to the WPIOP saying it had delivered to its project partner an initial, non-binding ±25% indicative tariff for the mine-to-ship supply chain and that it has until May 2016 to deliver a binding ±10% tariff.

Final investment decisions on whether to proceed with the project by all participants are now expected in late 2016, subject to ongoing feasibility studies and long-term iron-ore market fundamentals such as pricing.

Indeed current market instability does not lend itself to building new railways. While exports volumes have risen in the past five years, the price of coal has halved, and with several miners looking to sell operations in Queensland and New South Wales, prospects do not look great.

Asia's developments offer hope to Australian coal, yet miners are starting to face up to a real threat from renewable energy sources, which have grown at a faster rate than coal in the past five years. Some analysts predict that with battery storage improving it is only a matter of time before solar competes with coal for energy production.

Iron-ore faces similar challenges. With the market considered well supplied, there is little desire from some major miners to proceed with expansion projects. The Australian treasury admits that the boom days of $A 180 a tonne are over, but that Australia remains in a strong position to benefit from future demand in China and India as a low-cost producer.

For the time being at least, railway operators like Aurizon face a waiting game to see how they can capitalise on this changing market.

To date analysts and shareholders seem relatively content with the company's performance, with its share price fluctuating within a fairly narrow range in recent months despite a volatile market. In February, Aurizon reported net profit after tax of $A 308m for the half-year ending December 31 2014, an increase of 188%. At the same time the company said it remains on course to achieve its target of a 75% operating ratio for the 2015 financial year.