Rail freight company Aurizon insists its business and outlook is strong despite concerns about its exposure to a proposed WA iron ore project.
Rail company Aurizon has spent more than $200 million on the West Pilbara iron ore project but says it won’t proceed unless the mine’s economics stack up.
Australia’s largest rail freight operator joined China’s Baosteel in a $1.4 billion takeover of Aquila Resources in June to get a greater foothold in the Pilbara iron ore market.
But since it first made a bid in May, the iron ore price has tanked, falling from above $US105 a tonne to below $US80.
The fall has prompted questions about the wisdom of the Aurizon’s investment in a currently over-supplied iron ore market.
Chief executive Lance Hockridge sought to reassure investors on Monday, describing the project as a sound and exciting opportunity.
“We are not trying to defy gravity and it will only be in circumstances where the fundamentals of this project stack up … that we would make the commitment to go ahead,” he said.
Those fundamentals include operational, end market, product demand, cost and return on investment targets, he said.
A final investment decision is likely be made in late 2015 or early 2016, Mr Hockridge said.
Aurizon shares, down six per cent so far in 2014, climbed one cent to $4.58 on Monday.
The company is facing other challenges, including a weak coal market, which contributed to a 43 per cent fall in its annual net profit.
Aurizon is also involved in an industrial fight with the Rail, Tram and Bus Union, plus another battle with Queensland’s competition regulator over the tariffs it charges to use its tracks.
The business remained strong, Mr Hockridge said, pointing to a strong future for iron ore and coal demand, and the strength of Aurizon’s mining giant customer base.
Aurizon maintained its full year guidance, expecting coal volumes of 210-220 million tonnes, and 23 million tonnes of iron ore.