Glencore inquires after Aurizon’s $1bn One Rail Coal

Aurizon is understood to have already had about two parties knock on the door to buy the unit that is also known as One Rail Coal. Picture: Kevin Farmer

Swiss trading powerhouse Glencore is believed to have made approaches to Australia’s largest freight operator Aurizon about an acquisition of its East Coast Rail division that may have an asking price of close to $1bn.

Aurizon is understood to have already had about two parties knock on the door to buy the unit that is also known as One Rail Coal and that is up for sale through investment bank Goldman Sachs.

Glencore is the unit’s main customer and is said to be an interested buyer, although some suspect it is making efforts to gain control at an opportunistic price.

Analysts had earlier expected that Aurizon would be hoping for a price of about eight times the unit’s earnings.

For 2021, the east coast unit generated $227m of revenue and $137m of underlying earnings before interest, tax, depreciation and amortisation.

It hauled close to 50 million tonnes during 2021, its largest amount in a decade.

The $6.7bn Australian listed Aurizon has signalled a plan to either sell or demerge the unit following its acquisition of One Rail Australia for $2.35bn on October 22 from Macquarie Infrastructure and Real Assets.

The plan was to retain the more valuable One Rail Bulk operation and sell the component involving the haulage of coal across Queensland and NSW at a time that the commodity is a deterrent when it comes to investment decisions on the listed market by institutions, despite it soaring in value and generating cash.

Aurizon shares fell 6.2 per cent in response to the acquisition last year.

An official dual track process is expected to be launched should the Australian Competition and Consumer Commission approve the transaction in mid-March when a decision is anticipated.

It comes as Aurizon told investors on Monday while delivering its results that its net profit fell 4 per cent for the six months to December on the previous corresponding period to $257m, despite a 1 per cent lift in net profit to $1.5bn.

The results for the group, which has a debt level of 44 per cent, were impacted by reduced volume demand from customers impacted by Covid-19.

Glencore is the last of the world’s miners to retain a presence in thermal coal, but activist investors have been placing pressure on Glencore to sell its thermal coal business despite the commodity trading at strong prices, the Wall Street Journal has reported.

While delivering its results on Monday, Aurizon said East Coast Rail had a long-term rail haulage contract with Glencore to 2036, with minimum guaranteed volumes to 2034 and no commodity price risk. It is underpinned by lower cost, high energy thermal coal mines.

The amount of money needed for its core capital expense is less than 5 per cent of its revenue.