Aurizon: Standing strong

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 06 Jun 2017   Posted by admin


All images: Aurizon.

 

BY ELIZABETH FABRI

 

AURIZON is experiencing a difficult few months as it deals with the structural and financial damages experienced following Cyclone Debbie, but under the new leadership of ex-Rio Tinto executive Andrew Harding, the company’s strength cannot be questioned.

 

Former Rio Tinto Iron Ore chief executive Andrew Harding took over the Aurizon reins in December; and has since made a wave of advancements.

With close to 25 years experience as an executive in the resources industry, Mr Harding also brings a fresh and progressive approach to the role to further Aurizon’s Australian presence.

“I joined Aurizon in December, moving from a wintery London to sub-tropical Brisbane,” Mr Harding told Melbourne Mining Club delegates in April.

“After 24 years at Rio, it was a big change; a new location, a new organisation, and new ways of doing things.”

His first major hurdle occurred in April, when storms associated with Cyclone Debbie  caused significant structural damage to Aurizon’s Central Queensland Coal Network.

 

“Our Central Queensland coal network bore the brunt of the storm,” Mr Harding said. “Yet what impressed me most in the incident management was the primacy of safety and welfare. Systematically, all employees were contacted and supported where needed.”

 

The 2670km Central Queensland Coal Network which transported about 60 per cent of Australia’s coal exports, comprised the Goonyella Rail Corridor, Moura Rail Corridor, Newlands Rail Corridor and Blackwater Rail Corridor; along with the Hunter Valley corridor; and South-West Rail Corridor connecting coal mines in the Clarence-Moreton and Surat basins to the Port of Brisbane.

Each day, Aurizon moved more than 500,000 tonnes of freight bound for markets in India, Taiwan, South Korea, Japan and China through its fleet of about 600 active locomotives, 15,000 wagons, extensive road network of vehicles, and 40 depots across the five mainland States.

The Central Queensland network has a nameplate throughput of 308 million tonnes (mt) per annum, and last financial year hauled 226mt.

Aurizon was also the country’s largest haulier of iron ore for export outside of the Pilbara region.

In the March quarter, the company transported 48.4mt of coal; 2 per cent lower than the previous corresponding period, while iron ore volumes totalled 5.6mt; a 7 per cent drop attributed to operational issues from one of its customers.

“March Quarter 2017 Above Rail volumes were impacted by tropical cyclone Debbie and associated flooding affecting all commodities hauled in Queensland,” Aurizon stated.

“The expected impact to coal volumes will be 12-14mt, reducing FY2017 tonnage guidance to 190-200mt (from 200-212mt).”

Freight volumes for the quarter also saw a slight 3 per cent decrease primarily due to the cessation of the Mt Isa freighter service in February.

 

Aurizon chief executive Andrew Harding.

 

Cyclone Debbie impact

Aurizon was one  of the companies hardest hit by Cyclone Debbie, with all four of its Central Queensland rail systems forced to temporary close.

By 18 April, three out of the four railways had been reopened but were operating under rigid conditions with reduced capacity.

The Goonyella coal system suffered the worst damage and remained closed until 26 April.

“The storm killed at least 12 people in Queensland and New South Wales, primarily as a result of flooding,” Mr Harding said.

“This makes Debbie the deadliest cyclone to hit Australia since Cyclone Tracy in Darwin in 1974.

“In locations west of Mackay, at the heart of Aurizon’s operations, 48 hour rainfall totals exceeded 1000 millimetres or 39 inches in the old scale.

“In all, Cyclone Debbie touched communities covering around 4000 Aurizon employees.”

Mr Harding said Aurizon’s infrastructure teams scoped more than 520 pieces of recovery work, and estimated the repair bill to reach between $40 million and $50 million.

“A large part is being spent restoring track on landslips on Black Mountain, west of Mackay – the same spot that got a metre of rain in 48 hours,” he said.

“I flew over that section after the cyclone and can assure you this has been a major civil engineering exercise.

“Our infrastructure crews have worked relentlessly on a disciplined and well-executed recovery plan.”

He said the net impact on earnings would be between $30 million and $35 million (EBIT) when taking a three-year position that factored expected recoveries.

“That demonstrates a commercially and operationally resilient business in the face of Category Four cyclone that struck around 70 per cent of our asset base.”

Aurizon expected its Above Rail coal tonnes for FY17 to reduce by between 12mt and 14mt, worth $100–115 million to the company; between $70 million and $80 million of this would be recovered through regulatory processes in future years.

 

Galilee Basin rail plan

Aurizon has pushed forward a rail link plan for Queensland to connect the Galilee Basin with Abbot Point; a plan which was competing with the more expensive, but far more publicised Adani proposal

In March, the company submitted its proposal to the Northern Australia Infrastructure Facility (NAIF) for funding, competing with coal miner Adani which had put forward a similar plan last year.

When news of Aurizon’s application for the rail project went public, the company experienced heavy backlash from environmental activists.

“Within hours of our application becoming public, social media was swamped with vitriol on Aurizon and demonising our potential role in the Galilee,” Mr Harding said.

“Within days, we had protestors in our head office; I expect the anti-Aurizon campaign to continue while we are part of seeking a viable infrastructure solution for the Galilee.

“Our message won’t change- we acknowledge that climate change is human-induced, that action needs to be taken to reduce carbon emissions, and that a growing proportion of renewables will be part of that solution.

“However for the foreseeable future, the world’s energy needs will be served through a baseload of coal and gas, supplemented with the intermittent power of renewables.”

Construction costs for the project were estimated to be at least $1 billion less than the Adani’s plan by combining existing rail lines with new infrastructure.

“The Aurizon and proposed Adani corridors are so close that drivers could wave to each as trains crossed,” he said.

 

“The Adani proposal would cost more than $1 billion than the Aurizon option of tapping into an installed and efficient infrastructure asset.

 

“I can only ponder the parallels with the massive investment in triplicate of LNG trains in Queensland, now under-utilised, and the source of angst for Australian gas consumers.

“Adani’s proposal, through the NAIF process, also seeks Australian taxpayer funding.

“I’ve got to say that doesn’t make a lot of sense to me.”

 

 

Company outlook

While the Galilee rail link project was still up in the air, Aurizon had implemented a number of other changes across its organisation, primarily a new company structure that will come into effect July.

On 23 March, the company announced it would soon transition from a functional-based organisational model to a business unit model designed around the core areas of the business; coal, diversified bulk freight and iron ore, intermodal and network, and central support and planning functions.

Mr Harding said the functional model had served Aurizon well after it came out of government ownership, but the time had now come to move to a business unit model to driver greater efficiencies, and improve customer service and productivity.

“It will provide greater accountability with each business unit being responsible for both operational and financial performance rather than the current model where it is shared across multiple functions,” he said.

“The intent is for the new structure to be in place by 1 July this year and as we map out the detail we will keep our customers and employees updated, and consult where necessary.”

Aurizon had also made some senior management changes, including appointing former Woodside Petroleum executive Tina Thomas to the position of Human Resources executive vice president.

With a month left of FY17, the company hoped to reach its revised EBIT guidance of between $800m and $850m and coal haulage volumes between of 190mt and 200mt.

Mr Harding said in the years ahead, he also hoped to “build heavily on this platform of performance in rail infrastructure and train operations.”

“Here’s a business that can deliver sustained, long-term improvement across key safety and operating metrics,” he said.

“While much has been achieved, there’s plenty of juice left in the tank.

“It’s not inconceivable that in years to come, we could challenge the current business model for the Australian resources sector with Aurizon providing discrete, super-efficient rail and port services to resource companies and allowing them to focus on their core activities.”