Fortescue Metals Group Limited

FORTESCUE METALS GROUP LIMITED APPLICATION UNDER PART IIIA OF THE TRADE PRACTICES ACT 1974 FOR DECLARATION OF THE SERVICE PROVIDED BY BHP BILLITON IRON ORE PTY LTD DATED: 11 JUNE 2004

RAIL ACCESS DECLARATION APPLICATION

FORTESCUE METALS GROUP LIMITED – APPLICATION UNDER PART IIIA OF THE TRADE PRACTICES ACT 1974 FOR DECLARATION OF THE SERVICE PROVIDED BY PART OF THE MT NEWMAN RAILWAY LINE AND PART OF THE GOLDSWORTHY RAILWAY LINE

1. INTRODUCTION

1.1 Fortescue Metals Group Limited wishes to access the service provided by part of the Mt Newman Railway Line and part of the Goldsworthy Railway Line by having the relevant parts of those railway lines Declared as a service under Part IIIA of the Trade Practices Act 1974.

1.2 Accordingly Fortescue Metals Group Limited hereby makes this application to the National Competition Council to have the relevant parts of the Mt Newman Railway Line and Goldsworthy Railway Line Declared.

2. DEFINITIONS AND INTREPRETATION

2.1 In this Application (unless the contrary intention appears) the following words or expressions have the following meanings:

(1) “ACCC” means the Australian Competition and Consumer Commission established by the Act;

(2) “Act” means the Trade Practices Act 1974;

(3) “Application” means the application set forth in this document for a declaration of the Service pursuant to Part IIIA of the Act;

(4) “Council” means the National Competition Council established by the Trade Practices Act 1974;

(5) “Declare”, “Declared” or “Declaration” means the making of a declaration by the designated Minister as referred to in Part IIIA of the Act.

(6) “Facility” means that the facility and associated infrastructure as described in paragraph 5 of this Application;

(7) “FMG” or “the Company” means Fortescue Metals Group Limited, (ABN 57 002 594 872), of Fortescue House, 50 Kings Park Road, West Perth in Western Australia;

(8) “Goldsworthy Railway Line” means the railway line of approximately 210 kilometres in length which is currently used to carry ore from the mines near Yarrie to Port Hedland as described in paragraph 5.1 of this Application;

(9) “Iron Ore (Mount Newman) Agreement” means the Agreement established under the Iron Ore (Mount Newman) Agreement Act 1964 as amended from time to time;

(10) “Minister” has the same meaning as designated under section 44B of the Act;

(11) “Mt Newman Railway Line” means the railway line of approximately 425 kilometres in length which is currently used to carry ore from the mines in the Mount Newman area, as well as from Yandi, to Port Hedland as described in paragraph 5.1 of this Application;

(12) “Provider” means the party of party’s referred to in paragraph 6.2 of this Application;

(13) “Service” means the use of, and access, to the Facility described in paragraph 5 of this Application; and

(14) “State” means the state of Western Australia.

2.2 In this Application (unless the contrary intention appears) all references to:

(1) currency mean Australian dollars; and

(2) to locations or places mean those locations or places as they are commonly known or referred to by the iron ore industry or in the Pilbara district of Western Australia.

2.3 In this Application reference to any statute includes all amendments to that statute and any other statute enacted in substitution for, and the regulations, by-laws or other orders for the time being made under that statute.

3. THE APPLICANT

3.1 FMG as the applicant is an Australia resident public company listed on the Australian Stock Exchange Limited (ABN 57 002 594 872), which has a major focus in the Australian iron ore industry.

3.2 FMG owns significant iron ore resources and is also in the process of developing a processing plant to service its mining at operations at Mount Nicholas, as well as a railway from Mount Nicholas to FMG’s planned facilities at Port Hedland. As such, FMG is recognised by the industry as having the necessary resources to be a competent provider of necessary infrastructure.

3.3 FMG has a number of projects in the Pilbara region of Western Australia in which it is expanding its iron ore resource operations. The Company acquired tenements in the Mount Nicholas Area of the Pilbara in 2001 and is currently completing a major drilling program to delineate reserves in this area. It has also identified further resources along the Chichester Ranges including its interests at Christmas Creek which the Company estimates will host a resource of over one billion tonnes of iron ore. In total the Company holds tenement interests covering in excess of 12,000 square kilometres and estimates the associated resources on these tenements are likely to exceed three billion tonnes.

3.4 FMG is also involved in a 50/50 incorporated joint venture under the name of Pilbara Iron Ore Pty Ltd (ACN 100 410 295) with Consolidated Minerals Limited (ACN 000 727 926). This joint venture is nearing completion of resource identification at Mindy Mindy. FMG is making this application on its own behalf and in its capacity as a joint venture shareholder and operations manager of Pilbara Iron Ore Pty Ltd.

3.5 Details of all the acquisitions, tenements and projects referred to in paragraphs 3.3 and 3.4 of this Application have been released by FMG through the Australian Stock Exchange Limited and can also be accessed on the Company’s website: www.fmgl.com.au.

4. THE APPLICANT’S CONTACT DETAILS

4.1 FMG’s contact details are:

Fortescue House 50 Kings Park Road WEST PERTH WA 6005

Telephone: (618) 9266 0111 Facsimile: (618) 9266 0188

Attention: Peter Huston/Hsin-Luen Tan

4.2 FMG’s postal address is:

PO Box 910 WEST PERTH WA 6872

Attention: Peter Huston/Hsin-Luen Tan

5. DESCRIPTION OF THE SERVICE AND THE FACILITY USED TO PROVIDE THE SERVICE

5.1 The Service which FMG seeks to have Declared is:

(1) the use of the Facility, being:

(a) that part of the Mt Newman Railway Line which runs from a rail siding that will be constructed near Mindy Mindy in the Pilbara to port facilities at Nelson Point in Port Hedland, and is approximately 295 kilometres long further details of which are set forth and coloured red in the diagram annexed to this Application and marked “Annexure 1” for the purposes of identification; and

(b) the part of the Goldsworthy Railway Line that runs from where it crosses the Mt Newman Railway Line to port facilities at Finucane Island in Port Hedland, and is approximately 17 kilometres long further details of which are set forth and coloured red in the diagram annexed to this Application and marked “Annexure 2” for the purposes of identification.

(2) access to the Facility’s associated infrastructure, including, but not limited to:

(a) railway track, associated track structures, over or under track structures, supports (including supports for equipment or items associated with the use of the railway);

(b) bridges;

(d) train control systems, signalling systems and communication systems;

(e) sidings and refuges to park rolling stock;

(f) maintenance and protection systems; and

(g) roads and other facilities which provide access to the railway line route.

5.2 Importantly, FMG does not seek access to any rail haulage service, and accordingly this Application is not directed at the Provider’s locomotives and rolling stock, used in relation to the Facility.

5.3 In this respect, FMG notes the decision of Hamersley Iron Pty Ltd v National Competition Council [1999] FCA 867 of 28 June 1999. FMG understands that the railway system (the subject of that case), was operated so that train loads from the different mines of different grades of ore arrived at the port in a planned sequence to facilitate stockpiling and blending operations at the port, to produce export product ready for loading onto vessels. The Federal Court of Australia (in a single judge decision) held that the use of its railway line by Hamersley Iron Pty Ltd was an integral and essential operation in its production process and accordingly, that Part IIIA of the Act did not apply.

5.4 An appeal from this decision was due to be heard by the Full Federal Court on 22 November 1999 but was discontinued on the morning the appeal was due to be heard. FMG also refers to the comments on the decision in Hamersley Iron Pty Ltd v National Competition Council [1999] FCA 867 published in Volume 8 of the Trade Practices Law Journal, at page 45 where it was said that:

“The decision sets down a basis by which potential access providers may avoid the operation of Part IIIA. If the relevant service is the service for which the potential access provider uses the infrastructure, owners of vertically integrated assets may artificially arrange their operations to ensure that their infrastructure somehow forms part of their production process. Consequently, they may avoid having to grant access to third parties under the declaration process in Part IIIA. This would circumvent the aim of Part IIIA, namely, to introduce effective competition into industries by allowing third parties, operating upstream or downstream from a facility exhibiting natural monopoly characteristics, access to the facility’s services.”

5.5 As referred to in paragraph 5.4 of this application it has been argued that there is some doubt as to the correctness of the judgment handed down in Hamersley Iron Pty Ltd v National Competition Council [1999] FCA 867 (eg see also “Why The Decision in Hamersley Iron May Not be Good Law: Leif Gamerlsfelder 74ALJR 612-629”). In any event, FMG advises that it is not seeking access to the Provider’s production process. Instead, FMG confirms it is seeking access to the Service provided by the Facility to use FMG’s own rolling stock to transport its own iron ore and its own iron ore products, as is expressly permitted under section 44(B)(a) of the Act.

5.6 This is referred to by the Council in paragraph 3.30 of their paper entitled “The National Access Regime A Guide to Part IIIA of the Trade Practices Act 1974, Part B Declaration National Competition Council December 2002” where they say:

“The Council considers that the finding in the Hamersley Iron decision that Hamersley’s use of its railway line is a part of its production process is a finding of fact specific to the circumstances of that decision. Further, the Council considers that only in very few instances would the facts support a conclusion that a service provided by means of an infrastructure facility (such as a railway) is a part of a facility owners production service.”

5.7 FMG further submits that its use and the Provider’s use of the Facility are independent and that declaration of the Service would promote the objective of Part III A of the Act as explained in Re Australian Union of Students [1997] [ATPR] 41-573:

“Part IIIA is based on the notion that competition, efficacy and public interest are increased by overriding the exclusive rights of the owners of ‘monopoly’ facilities to determine the terms and conditions on which they will focus their services. In Part IIIA the focus is upon facilities of national significance that it would be uneconomic to duplicate or replicate and that supply a service, access to which would promote competition in another market.”

5.8 In addition the Hamersley Iron Pty Ltd v National Competition Council case can further be distinguished from the present facts on the following grounds:

(1) In Hamersley Iron Pty Ltd v National Competition Council [1999] FCA 867, the issue which transformed the bare use of its railway line into a production process was the implementation of the batching programme, whereby train-loads from different mines of different grades of ore arrived at the port in a planned sequence to facilitate stockpiling and blending operations at the port.

In contrast, the Provider does not run its operations in a similar manner. FMG understands the Provider sells ten distinct products, many of which are sourced from a single mine or mining area. These products are as follows:

Product Comment 1 Mt Newman Hi Grade Lump (Hematite ore) Blending occurs at Mt Newman and also Port Hedland 2 Mt Newman Hi Grade Fines (Hematite ore) Blending occurs at Mt Newman and also Port Hedland 3 Port Hedland Sinter Fines (Hematite & Pisolitic Blended from different mines at Port ore) Hedland 4 Goldsworthy Hi Grade Lump (Hematite ore) Transported down Goldsworthy Railway Line. 5 Goldsworthy Hi Grade Fines (Hematite ore) Transported down Goldsworthy Railway Line. 6 Goldsworthy Siliceous Run of Mine (Hematite Transported down Goldsworthy ore) Railway Line. 7 MAC Lump (Marra Mamba ore) Blended at Port Hedland or stand alone. 8 MAC Fines (Marra Mamba ore) Blended at Port Hedland or stand alone. 9 Yandi Lump Ore (Pisolitic ore) Blended at Port Hedland or stand alone. 10 Yandi Fines Ore (Pisolitic ore) Blended at Port Hedland or stand alone.

That is, of the ten ores that the Provider sells, it is the understanding of FMG that it is only the Port Hedland Sinter Fines which is a product currently blended from different mines, and thus, the only product that would necessarily have any use for any type of batching programme. The remaining products all have the potential to be blended into a saleable product at the mine or to be sold unblended (i.e. as a stand alone product). Accordingly, the Facility cannot be characterised solely as a production process, which would otherwise exclude it from the operation of Part IIIA of the Act.

(2) In Hamersley Iron Pty Ltd v National Competition Council [1999] FCA 867, the Federal Court defined “production process” as follows:

“a series of operations by which a marketable commodity is created or manufactured.”

As identified by the Council, delineating a production process requires the identification of a marketable commodity or product. The Federal Court also stated that:

“Hamersley’s production process in the Pilbara extends, …, from its commencement of mining operations at the mines to the completion of the product that it sells, namely, export product. There was no evidence to show that Hamersley produces a marketable commodity at an earlier stage.”

In the case of the Provider (if indeed it was not in fact truly the case with Hamersley Iron Pty Ltd) it is apparent that a marketable commodity exists at a point in time prior to creation of an export product. That point of time being when the Providers product is loaded onto the Providers rolling stock. Similarly FMG will produce a marketable commodity at the time that it would be permitted to load its product onto its rolling stock by gaining access to the Facility and utilising the Service. This supports the conclusion that the rail track is not part of the Provider’s production process, but is instead, truly a method of transport.

5.9 FMG also refers to clause 9(2)(a) of the Iron Ore (Mount Newman) Agreement which inter alia requires the Mount Newman Iron Ore Company Limited to operate the railway in a safe and proper manner and, to the extent that they could do so without unduly prejudicing or interfering with their operations, carry the freight of the State and of third parties on the railway, subject to and in accordance with by-laws to be made. If no by- laws were made, freight was to be carried upon reasonable terms and at reasonable charges. In relation to this obligation FMG refers to the recent decision of the Full Court of the Supreme Court of Western Australia in Hancock Prospecting Pty Ltd & Ors v BHP Minerals Pty Ltd & Ors 2003 WASCA 259 (delivered on 6 November 2003) where it was held that:

“Upon request by the plaintiffs the first defendants are obliged, under and in accordance with the Mount Newman Agreement as varied by the Rail Transport Agreement, to negotiate and enter into a contract with the plaintiffs, to carry the iron ore products produced by the plaintiffs operating a mine.”.

5.10 Accordingly, FMG submits that the decision of the Full Court of the Supreme Court of Western Australia on its interpretation of the Iron Ore (Mount Newman) Agreement to which the Provider is a party maintains and supports the contention that the Service is a method of transport and not a production process. Furthermore as a legitimate third party, FMG has an enforceable right of carriage with respect to the Mt Newman Railway Line and the Provider is required to negotiate transport arrangements with FMG (before the FMG’s mines are in active production). By Declaring the Service the Council will carry into effect the apparent objective of the Iron Ore (Mount Newman) Agreement as providing third parties with access to, a method of transport. This in turn will promote the underlying principles and objectives of Part IIIA of the Act namely the promotion of competition by providing access to facilities of national significance.

6. PROVIDER OF THE SERVICE

6.1 Section 44B of the Act defines the provider, in relation to a service, as meaning “the entity that is the owner or operator of the facility that is used (or is to be used) to provide the service.”

6.2 FMG understands that the Facility is jointly owned by BHP Billiton Minerals Pty Ltd (ACN 008 694 782), Mitsui-Itouchu Iron Pty Ltd (ACN 008 702 761) and CI Minerals Australia Pty Ltd (ACN 009 256 259) trading as joint venturers. FMG further understands that the operator and manager of the joint venture or joint ventures is BHP Billiton Iron Ore Pty Ltd (ACN 008 700 781).

6.3 Accordingly the parties referred to in paragraph 6.2 of this Application jointly compromise the Provider within the meaning of section 44B of the Act.

7. THE APPLICATION

7.1 FMG submits that the Facility which it seeks to have Declared is an infrastructure service of national significance. FMG hereby applies to the Council to have the Service Declared under Part IIIA of the Act. If the Service is Declared, FMG will utilise access to the Service to operate trains and rolling stock to transport iron ore and iron ore products from Mindy Mindy to port facilities at Port Hedland (as referred to in paragraph 5.1 of this Application) in accordance with best practice and in compliance with all relevant safety and other legislative requirements.

7.2 FMG will arrange the carriage of iron ore and iron ore products on the Service by:

(1) acquiring and utilising its own locomotives and rolling stock in accordance with all relevant rail and associated legislation;

(2) utilising reputable, reliable and experienced employees, contractors and consultants to conduct regular operation and maintenance work where applicable, to the Service; and

(3) utilising reputable, reliable and experienced employees and/or contractors to carry out loading and unloading, delivery and monitoring of iron ore and iron ore products on and off the Service.

7.3 FMG requires access to the Service for the following reasons:

(1) to transport its iron ore and iron ore products from Mindy Mindy and various other mine sites to the export facilities at Port Hedland and accordingly, to enable the transport of iron ore from those mine sites for sale and export;

(2) there is currently no rail alternative to transport iron ore from Mindy Mindy to Port Hedland for the type and volume of product planned by FMG;

(3) any alternative transport by way of road or air for the type and volume of product planned by FMG, is not economically feasible;

(4) to facilitate FMG’s efforts to exploit other iron ore reserves that might not in their own right, justify the construction of rail infrastructure;

(5) to increase the options available to FMG when determining the optimum method of transporting FMG’s iron ore and iron ore products from Chicesters to Port Hedland; and

(6) to further enable FMG to optimise the utilisation of its own rail infrastructure together with the Provider’s rail infrastructure in a mutually advantageous way. FMG envisages this will effectively result in organisation of the combined assets of FMG and the Provider, to facilitate the most efficient use of the Facility and FMG’s own infrastructure.

7.4 Furthermore, FMG seeks access to promote its foundation principle that rail infrastructure in the Pilbara region of Western Australia should be more readily available to third parties to encourage the development and expansion of the currently stranded resources to boost and benefit both the local and national economy.

8. PRIOR NEGOTIATIONS

8.1 FMG first attempted to negotiate access to the Facility with the Provider in or about late July 2003 when it stated its commitment to rapidly creating the world’s most efficient rail and port systems in cooperation with the Provider. These negotiations and discussions extended into January and February of 2004.

8.2 During this period, the Provider made it clear that it (incorrectly and unilaterally) determined that it was premature to enter into rail access negotiations with FMG when it considered FMG faced significant challenges with regard to rail access. Furthermore, the Provider did not wish to cooperate with FMG while the Provider’s own focus was on the export of as much of its own iron ore product as possible.

8.3 A chronology summarising some of the attempts at negotiation by FMG with the Provider are set forth in the table annexed to this Application and marked “Annexure 3” for the purposes of identification.

9. PERIOD FOR WHICH DECLARATION IS SOUGHT

9.1 A Declaration is sought for a period of 20 years.

9.2 This is the period which FMG envisages is of sufficient duration to enable the resources at Mindy Mindy and its other mines, to be mined.

10. RESTRICTIONS ON DECLARATIONS

10.1 Certain restrictions are imposed on the ability of the Council to recommend the Declaration of a service, and also on the ability of the Minister to Declare a service. Restrictions are imposed where the Service is currently the subject of an access undertaking or an effective access regime.

10.2 Pursuant to section 44G(1) of the Act the Council cannot recommend Declaration of a service that is the subject of an access undertaking in operation under section 44ZZA of the Act. Similarly, pursuant to section 44H(3) of the Act the Minister cannot Declare a service that is the subject of an access undertaking in operation under section 44ZZA of the Act.

10.3 As at the date of the Application, FMG has conducted a search of the registers held by the ACCC and is able to conclude that the Provider has not given any such access undertakings under section 44ZZA of the Act.

10.4 Similarly the Council cannot recommend Declaration of a service that is already the subject of an effective access regime, under section 44G(2)(e) of the Act. Likewise the same restriction against Declaring such a service is imposed on the Minister by section 44H(4)(e) of the Act.

10.5 Pursuant to section 44M of the Act a Premier or Chief Minister may apply to the Council for a recommendation that the access regime of a State or Territory be certified as an effective access regime. The Council’s recommendation is forwarded to the designated Commonwealth Minister, who must decide whether to certify the regime as an effective access regime and specify the period for which certification if granted, will be in force. Where an access regime is certified as an effective access regime then, access to the service is exclusively governed by that regime and the declaration provisions of Part IIIA of the Act are excluded. That is, if a service is certified as an effective access regime, it cannot be declared for access under Part IIIA of the Act.

10.6 In February 1999, the Western Australian Government submitted an application to the Council for certification of the State’s rail access regime under section 44M. After consideration of the application, it became evident that there was considerable uncertainty as to the interface between the proposed Western Australian access regime and the proposed national regime. The Council suggested an undertaking be submitted to the ACCC to ensure national arrangements could be developed. However, the State decided against this approach indicating that whilst it appreciated the Council’s desire to promote national consistency, it was concerned about committing to a national process the details of which were yet to be determined. The Council felt that it could not make a positive recommendation in regards to the certification of the Western Australian access regime until the issue had been resolved.

10.7 Interestingly, the Council apparently considered that the Western Australian access regime addressed the requirements for an effective access regime under Part IIIA of the Act. This is predicated on the assumption that the regime remains consistent with the version previously submitted to the Council. However, there is currently no certification of an effective access regimes regarding rail transport in Western Australia.

10.8 As no certification has been made, both the Council and the Minister must apply the relevant principles set out in the Competition Principles Agreement established in April 1995, and pursuant to section 44M(4) of the Act must not consider any other matters, in deciding whether an access regime is an effective access regime.

10.9 FMG understands that on 27 January 1987, the State of Western Australia and the Participants entered into an agreement to set forth the principles on which iron ore products of third parties could be carried on the Mt Newman Railway Line. FMG understands that to date, no contractual arrangements have been entered with any third party whereby any third party could have their products carried on the Service. The abovementioned agreement of 27 January 1987 would not satisfy the requirements of section 44M(4) of the Act. Accordingly, FMG submits that after consideration of the provisions of Part IIIA of the Act and of the principles set forth in the Competition Principles Agreement, no effective access regime is in place concerning the Service.

11. MATTERS TO BE SATISFIED IN SECTIONS 44F(4), 44G(2), SECTION 44H(2) AND SECTION 44H(4) OF THE ACT

Both the Council and the Minister must consider or satisfy themselves of the criteria set out in sections 44F(4), 44G(2), 44H(2) and 44H(4) of the Act before Declaring the Service or recommending Declaration of the Service. FMG has addressed each of these criteria in paragraphs 12 to 17 inclusive of this Application.

12. ACCESS (OR INCREASED ACCESS) TO THE SERVICE WOULD PROMOTE COMPETITION IN AT LEAST ONE MARKET (WHETHER OR NOT IN AUSTRALIA), OTHER THAN THE MARKET FOR THE SERVICE

12.1 Access to the Service would promote competition in the following markets:

(1) iron ore production both within Australia and other countries;

(2) production, development and exploitation of other minerals and products in the Pilbara region of Western Australia requiring transport services from the source of production to port facilities at Port Hedland;

(3) ownership, development and exploitation of iron ore tenements;

(4) the haulage of iron ore and other minerals from various mine sites in the Pilbara region of Western Australia;

(5) retail of iron ore and other minerals, both as sold at the mine and also as sold at export terminals; and

(6) export of products from Port Hedland (by rail, road and sea).

12.2 The Service constitutes a classic example of a bottleneck facility in that access to the Service is necessary for any operator in the markets set out in paragraph 12.1 of this Application to be able to effectively compete in those markets.

12.3 Currently, there is an absence of:

(1) facilities to transport iron ore and iron ore products from mine sites to markets;

(2) facilities to transport iron ore and iron ore products from the mine site through to a point where that ore can be loaded onto a customer’s ship; and

(3) haulage services to transport product to export terminals.

Without these facilities and services, iron ore currently can only be sold from export terminals, which third parties currently cannot access. It is evident that if the Service were accessible by third parties, potential purchasers could contract to purchase the iron ore and iron ore products directly from the mine and arrange transport of the iron ore products via the Service. Further, mine sites accessing the Service would be placed in a position whereby the availability to transport of their products would create the opportunity for sale and enhancement of that product. Granting access to these third parties would therefore increase the number of participants, create additional down stream processing and spin-off business opportunities and accordingly, open up current and new markets to competition. Therefore access to the Service would encourage the opening and development of new participants in the iron ore market, together with new participants in other markets and new mines.

12.4 Currently, Rio Tinto Limited (ACN 004 458 404) and its subsidiaries and the Provider between them, are the only participants controlling all the railways operating in the Pilbara region of Western Australia. FMG believes that, in Declaring the Service and enabling FMG to access the Service, competition will be introduced into this duopoly that currently controls the facilities required to transport iron ore from the Pilbara region of Western Australia. By granting the Declaration the existing participants in the iron ore supply market will be forced to respond to the entry of FMG as a low cost supplier. In addition it would encourage the disaggregation of the currently existing vertically integrated structures which have been designed in a manner to block the development of the competition in associated markets.

13. IT WOULD BE UNECONOMICAL FOR ANYONE TO DEVELOP ANOTHER FACILITY TO PROVIDE THE SERVICE

13.1 The nature and location of the Facility, together with the volume of product required to be transported, means there are no real substitution possibilities for the Service. Further, because of the volume of iron ore and iron ore product to be transported, road and air transport options are simply not feasible. For example, the operating cost of transporting iron ore from Mindy Mindy to Port Hedland via a railway is in the region of $1.50 per tonne. In contrast, the cost of using haulage trucks to transport that same volume of iron ore and iron ore product, would be in excess of $50 per tonne. This calculation employs the underlying assumption that 200 tonne trucks were permitted to travel on a public highway.

13.2 Therefore, in order for any party to develop another facility to provide the same service, that person would need to construct an alternative railway line from the Mindy Mindy siding to Port Hedland. This would in effect, duplicate both the existing Mt Newman Railway Line as well as the associated infrastructure support. FMG estimates the cost of constructing an alternative railway line to be in the vicinity of $400 million.

13.3 FMG’s analysis of the Facility shows that the Service is capable of accommodating approximately 150 mtpa with only minimal expenditure on increasing the capacity of the existing track. The Service currently carries approximately 90 mtpa, leaving a potential excess capacity of 60 mtpa. Accordingly, it would be uneconomical for another railway to be duplicated where there is currently spare capacity on the existing railway line. That is, with the potential excess capacity of 60 mtpa, it would appear that the single existing Facility can meet market demand at less cost than two or more facilities can. FMG notes that this trait is indicative of a natural monopoly and typical of facilities with substantial fixed costs and low operating costs, giving rise to economies of scale.

13.4 It is also reasonable to conclude that the cost to the Provider of allowing third party access to the Service would be confined to relatively minor costs associated with scheduling the pathways and where necessary, accommodating timetable changes to its existing operations. FMG envisages that there would also be some small costs associated with additional maintenance and repair generated by the additional usage. However, as the costs of maintenance and repair would also be imposed on any new facility constructed, an examination of the overall costs suggests unequivocally that it would be uneconomic to duplicate the existing Service.

14. THE FACILITY IS OF NATIONAL SIGNIFICANCE

14.1 The Act requires the Council and the Minister to consider whether the facility is of national significance, having regard to the size of the facility, importance of the facility to constitutional trade or commerce, and the importance of the facility to the national economy.

14.2 The Facility in question stretches over a distance of approximately 300 kilometres. Accordingly, it is of national significance from a size aspect alone.

14.3 The facility is also important to constitutional trade or commerce, currently contributing approximately 80 mtpa or iron ore from the Newman-Jimblebar, Yandi and Mining Area C locations in the Pilbara. The export of this product currently generates approximately $3 billion in export revenues. However, as previously foreshadowed, the Facility has a capacity of 145 mtpa, which equates to a potential of over $5 billion to be derived from export revenue in iron ore alone. It must be kept in mind that these figures relate to the export value of the iron ore only.

14.4 Other benefits will be returned to the Western Australian and national economy from employment opportunities, royalties from the mining of iron ore and other minerals, as well as openings in the markets previously highlighted in this Application. Consequently, it is evident that the Facility is of national significance to both constitutional trade and commerce and to the national economy.

15. ACCESS TO THE SERVICE CAN BE PROVIDED WITHOUT UNDUE RISK TO HUMAN HEALTH OR SAFETY

15.1 FMG undertakes that if the Declaration is granted, it will conduct its operations on or utilising the Facility in accordance with best practice and comply with all relevant safety and other legislation. FMG will ensure its operations are safely and effectively integrated with the Provider’s safety and operating procedures in a manner that ensures there will be no undue risk to human health or safety as a result of access being made available or the Declaration being granted.

15.2 Further, the Iron Ore (Mt Newman) Agreement requires Mt Newman Iron Ore Company Limited to operate its railway in a safe and proper manner, without undue risk to human health of safety. In particular clause 9(2)(a) of the Iron Ore (Mount Newman) Agreement states that Mt Newman Iron Ore Company Limited must:

“operate its railway in a safe and proper manner and where and to the extent that it can do so without unduly prejudicing or interfering with its operations hereunder allow crossing places for roads stock and other railways and transport the passengers and carry the freight of the State and of third parties on the railway subject to and in accordance with by- laws (which shall include provision for reasonable charges) from time to time to be made altered and repealed as provided in subclause (3) of this clause and subject thereto or if no such by-laws are made or in force then upon reasonable terms and at reasonable charges (having regard to the cost of the railway to the Company) PROVIDED THAT in relation to its use of the said railway the Company shall not be deemed to be a common carrier at common law or otherwise”.

15.3 FMG agrees to abide in all respects with the provisions of the Mt Newman (Iron Ore) Agreement including with limitation clause 9(2)(a).

16. ACCESS TO THE SERVICE IS NOT ALREADY THE SUBJECT OF AN EFFECTIVE ACCESS REGIME

Please refer to the statements in paragraph 10 of this Application.

17. ACCESS (OR INCREASED ACCESS) TO THE SERVICE WOULD NOT BE CONTRARY TO THE PUBLIC INTEREST

For all of the reasons set out in this Application, access to the Service would be in the public interest because:

(1) access to the Service would promote competition in the iron ore market as well as a number of markets both upstream and downstream of the iron ore market;

(2) access to the Service would encourage the entry of new participants into the markets and also promote competitors to intensify their existing activities;

(3) the entry of new participants and probable increased intensity from existing participants would mean improved economic activity and employment for the industry in Western Australia which would in turn feed back into the Western Australian and National economy;

(4) use of an existing railway line with spare capacity, as opposed to the development and subsequent usage of alternate or additional transport structures, will pose less stress on the environment and less demand on resources; and

(5) further promote the marketing and sale of iron ore at the point of extraction and/or at the point at which it is loaded onto the Facility.

18. CONCLUSION

Accordingly, having addressed all the criteria set out in the Act, FMG hereby applies to the Council to have the Service Declared pursuant to part IIIA of the Act.

______ANDREW FORREST FORTESCUE METALS GROUP LIMITED

ANNEXURE 1

THE MT NEWMAN RAILWAY LINE

(REFER PARAGRAPH 5.1 (1)(A))

1 1 1 1 1 2 6 8 0 ° ° ° E E E

LEGEND 20°S Town

Highway

Drainage PPoorrrttt HHeeddlllaanndd . Railway .MMoouunnttt GGoolllddsswwoorrrttthhyy .. That part of the Mt Newman SSoouuttthh HHeeddlllaanndd railway line the subject of the Application DDaammppiiieerrr . . KKaarrrrrraattthhaa

22°S

. WWiiitttttteennoooomm GGoorrrggee

% . TToomm PPrrriiiccee

MMiiinnddyy MMiiinnddyy

. PPaarrraabbuurrrddoooo Fortescue Metals Group Ltd . NNeewwmmaann

0 25 50

kilometers Mt Newman Railway Line

ANNEXURE 2

THE GOLDSWORTHY RAILWAY LINE

(REFER PARAGRAPH 5.1 (1)(B))

1 1 1 1 1 2 6 8 0 ° ° ° E E E

LEGEND

Town

Highway 20°S Drainage

Railway

PPoorrrttt HHeeddlllaanndd PPoorrrttt HHeeddlllaanndd That part of the Goldsworthy . .MMoouunnttt GGoolllddsswwoorrrttthhyy railway line the subject of the Application .. SSoouuttthh HHeeddlllaanndd DDaammppiiieerrr . . KKaarrrrrraattthhaa

22°S

. WWiiitttttteennoooomm GGoorrrggee %

. TToomm PPrrriiiccee

0 25 50 kilometers Fortescue Metals Group Ltd . PPaarrraabbuurrrddoooo Goldsworthy Railway Line . NNeewwmmaann

ANNEXURE 3

DETAILED CHRONOLOGY

(REFER PARAGRAPH 8)

CHRONOLOGY OF NEGOTIATIONS

NUMBER DATE NARRATION

1. 18 July 2003 Andrew Forrest and Graeme Rowley first met with Graeme Hunt from BHP Billiton Iron Ore; the purpose was to explain what FMG was hoping to achieve and to persuade BHP Billiton Iron Ore to co-operate with FMG in a mutually beneficial arrangement.

2. 24 July 2003 The meeting was followed up with a letter from Andrew Forrest to Graeme Hunt. There was no response to this letter.

3. 1 December 2003 Andrew Forrest wrote to Peter Beaven at BHP Billiton Ltd, noting the Supreme Court’s decision dealing with BHP Billiton’s obligation to enter into contracts for the carrying of iron ore products on the rail infrastructure developed by BHP Billiton.

4. 2 December 2003 Graeme Rowley faxed a copy of the same letter to Graeme Hunt requesting an opportunity to discuss the issues outlined.

5. 23 December 2003 Graeme Hunt responded to Andrew Forrest’s letter making the following points:

(1) BHP Billiton Iron Ore thought that FMG was building its own railway. (2) It would be premature to enter into rail access negotiations. (3) FMG faces significant challenges: (4) (a) Negotiation of State Agreement for development of iron ore (b) Draft Proposals for development (c) Conversion of exploration to mining tenements (d) Detailed environmental impact studies and public assessment (e) Financial viability of project: • Fe grades • Indicative specifications (f) Native title issues (g) Port infrastructure, mine loading, port unloading and rail carriage fleet (h) Financial funding (i) Base tonnage for Rail Transport Agreement (RTA)

Graeme Hunt concluded that given the challenges facing FMG it would not currently be commercially sensible to expend resources negotiating an arrangement under the RTA. He pointed out that the RTA requires the nomination of a base tonnage which becomes a ‘take or pay’ commitment.

Graeme Hunt mentioned:

(1) Capital contribution required to add capacity; (2) The capital required by Mount Newman Joint Venture (MNJV) for funding of the railway and rolling stock; (3) Securities that will be provided to BHP Billiton to undertake the carriage service.

NUMBER DATE NARRATION

6. 16 January 2004 Andrew Forrest responded to Graeme Hunt’s reply pointing out the contractual obligation to sensibly negotiate and at the very least commence meaningful negotiations. Andrew Forrest acknowledged:

(1) Liability for capital and other costs associated with gaining access (2) That 45mtpa will have an impact on existing operations (3) Acceptance of reasonable sharing of costs (4) The need to cause the minimum interference to all parties whilst recognising the contractual obligation on all parties to share the system.

Andrew Forrest reiterated:

(a) An explicit obligation to carry iron ore products of a third party – “to be negotiated” (b) The interpretation that one doesn’t need to be operating a mine to be a third partry (c) The railway line is not a private facility for the exclusive use of the MNJV – the right of access to third parties allows for competition between producers of iron ore (d) “to be negotiated’ – means prior to the time when the products are to be carried and therefore before the mine is in active production (e) The resources required to negotiate access are a burden imposed by the MNJV’s privileged position.

Andrew Forrest also pointed out:

(j) There are two obligations imposed by the Supreme Court decision: • To negotiate • To enter into a contract

FMG is asking to negotiate and that BHP Billiton Iron Ore’s refusal to negotiate is noted.

7. 2 February 2004 Graeme Hunt replied and repeated his position that BHP Billiton Iron Ore did not wish to discuss the provision of an iron ore rail carriage service until such time as FMG was capable of entering into and sustaining the associated commitments and that BHP Billiton Iron Ore did not believe that FMG was yet in that position.

Graeme Hunt said that BHP Billiton Iron Ore wished to understand how FMG was going to meet the challenges it faced and suggested that contact be made with Stewart Hart – VP Commercial, BHP Billiton Iron Ore.

NUMBER DATE NARRATION

8. 12 February 2004 A meeting between Andrew Forrest (and others from FMG) and Stewart Hart (and a colleague) took place at FMG’s offices. The issue of access to BHP Billiton’s Mount Newman Railway line, specifically for the transportation of iron ore from Mindy Mindy, was discussed. The meeting was amicable and BHP Billiton Iron Ore promised to respond within a week.

9. 20 February 2004 When no response had been received Andrew