Iron ore rallies on news of runaway BHP train

The Mount Newman railway line in Western Australia. Source: BHP Billiton Ltd.

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The Mount Newman railway line in Western Australia. Source: BHP Billiton Ltd.

BHP Billiton Ltd. [BHP-NYSE; BHPLF-OTCPK] has suspended all iron ore rail operations in Western Australia after a train carrying iron ore took off without the driver on board and travelled across the Pilbara outback before it was stopped early Monday.

Local media reports said the train literally ran away after the driver briefly stepped off the train to inspect an issue with a wagon. Before he was able to get back on board, the train moved away with 268 wagons in tow and travelled 92 km before it was deliberately derailed by BHP.

Calculations by Reuters News service indicate that the train reached speeds of about between 100 and 200 kilometres per hour before it was finally halted at a location about 120 km from BHP’s Port Hedland Mine operations.

No-one else was travelling on the train at the time of the incident and there were no reported injuries.

Prices in the spot seaborne iron ore market rebounded back over the US$75 per tonne level overnight due to the derailment.

Western Australia Iron Ore (WAIO) is an integrated system of four processing hubs and five mines, connected by more than 1,000 km of rail infrastructure and port facilities in the Pilbara region of northern Western Australia.

At each mining hub – Newman, Yandi, Mining Area C, and Jimblebar – ore from mines is crushed, beneficiated (where necessary) and blended to create high-grade hematite lump and fine products. Iron ore products are then transported along the Port Hedland-Newman Rail Line to the Finucane Island and Nelson Point port facilities at Port Hedland.

The Mount Newman railway line is one of Australia’s longest private railway lines.

The Australian Transport Safety Bureau (ATSB) is sending officers to the Pilbara to investigate after the runaway train, loaded with ore from BHP’s Newman Mine site, suffered significant damage in the derailment.

The incident occurred at around 4:40 a.m. on November 5, 2018, the ATSB report said.

News of the forced derailment has put the spotlight on the WAIO reserve base which is relatively concentrated, allowing development to be planned around integrated mining hubs, which are connected to the mines and satellite orebodies by conveyor or spur lines.

This approach enables the value of the installed infrastructure to be maximized by using the same processing plant and rail infrastructure for a number of orebodies.

There are four main WAIO joint ventures: Mt. Newman, Yandi, Mt. Goldsworthy and Jimblebar. BHP’s interest in each of the joint ventures is 85%, with Mitsui & Co. Ltd. of Japan and ITOUCHU Corp. (also of Japan) owning the remaining 15%.

BHP, Mitsui and ITOCHU have also entered into separate joint venture agreements with some customers that involve the sublease of parts of WAIO’s existing mineral leases.

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