BHP Billiton reportedly struck a secret deal with the Western Australian government in the middle of last decade, which serves to effectively bar many of the mining giant’s competitors from access to the country’s busiest port.
The Australian Financial Review has reported that the world’s largest resources company inked a confidential deal known as the Harriet Point Agreement with the Western Australian government in the mid-2000’s, which serves essentially as a guarantee that other parties would only be permitted to use the port if they do not threaten BHP’s plans to raise production levels to 240 million tonnes per annum.
While it is believed that the agreement does not confer BHP with the right to exercise an outright veto of access by other miners, it would appear that the deal gives the mining giant significant influence over the port authority with respect to the matter.
Access to rail and port facilities is a fraught issue for miners in Western Australia, who need access to this critical infrastructure in order to convey their products to key markets abroad.
Port Hedland currently tops the list of the largest ports by volume in the whole of the country, due to its proximity to the mineral rich mining hub of the Pilbara. Hedland is also the world’s largest iron ore export port, currently accounting for around 20 per cent of global volume.
The country’s leading iron ore miners, including Fortescue and Gina Rinehart’s Hancock Prospecting, are currently vying for further allocations as they continue to expand output, and the spot price for iron ore rides high due to firmer demand from Chinese steelmakers.
Fortescue recently announced that Port Hedland’s capacity should be able to rise beyond half a billion tonnes, on the condition that allocations are only made to parties fully capable of funding and finishing developments.
Rio Tinto has also embarked upon a drive to upgrade its port facilities and infrastructure, in order to cater to an expansion in iron ore output prompted by expectations of sustained increased in Chinese demand. The company is investing USD$3.5 billion in the construction of more berths at Cape Lambert, as well as the expansion of rail lines in the Pilbara.
While the confidential agreement with the Western Australian government may have appeared to be the secret trump card for BHP’s iron ore operations, in marked contrast to its other miners the company has of late appeared far more reserved in its attitudes towards the key steel making ingredient.
BHP’s USD$20 billion outer harbour project at Port Hedland has stalled, while Mike Henry, BHP’s marketing president, told the Wall Street Journal that the company anticipates a “transition away from traditional steel-based commodities over the long run.”
While BHP relies on iron ore for over half its earnings, it does not have any new ore mines in the pipeline, and instead hopes to raise output from 20 million to 30 million tons via efficiency gains at its operations in the Pilbara.