Glencore tipped to show interest in Aurizon’s East Coast Rail sale as One Rail buy finalised

An Aurizon bulk concentrates train with Mount Stuart in the background.

Aurizon has launched the sale process for East Coast Rail after it finalised its deal to buy One Rail Australia, and some suspect that European trader Glencore will be back for the competition.

Glencore has been around the edges before, but should it be a buyer it is unlikely to pay up for the business in a big way.

Yet, given the profitability of coal, one cannot rule out other suitors emerging, although many in the market see a demerger as the inevitable outcome for logistics group Aurizon.

Private equity firms like Oaktree or Elliott Management are logical candidates.

Aurizon inherited East Coast Rail through its acquisition of One Rail Australia for $2.35bn, which it finalised on Friday.

One Rail, which was owned by Macquarie Asset Management, has bulk haulage and freight assets in South Australia and the Northern Territory, together with the 2200km Tarcoola-Darwin railway line, and Aurizon plans to integrate it into its existing business.

The other part of One Rail is a coal haulage business in NSW and Queensland, known as East Coast Rail. It is being sold as part of an undertaking given to the competition regulator. Working on the sale is Goldman Sachs.

For 2021, the unit generated $227m of revenue and $137m of underlying earnings, and the thinking is that it could be worth about $1bn.

Few buyers are in the market for coal assets, with investors shying away from fossil fuel-related businesses. The unit hauled close to 50 million tonnes during 2021 – the most in a decade.

One thought is that private equity firms Carlyle and Varde Partners, which own mining services provider Bis Industries, would be good owners, as it would be a good fit with Bis.