US Rail Group buys FreightLink for $334m


US Rail Group Genesee & Wyoming agrees to buy troubled Darwin-to-Adelaide rail assets of FreightLink for $334m


By Anna Game-Lopata | June 10, 2010

US Rail Group Genesee & Wyoming
has agreed to buy the troubled Darwin-to-Adelaide rail assets of FreightLink for $334 million.

The deal ends two years of uncertainly over the future of the rail link, which was first promised in 1911 as part of arrangements for the Commonwealth to take responsibility for the NT from South Australia.

KordaMentha was appointed receiver of FreightLink in November 2008 when financial difficulties prevented it from
completing a voluntary sale.

Since then, finding a buyer has proved difficult because of the global financial crisis.

GWI says FreightLink will be operated as part of its Australian operation Genesee & Wyoming Australia (GWA), which is based in Adelaide.

GWA has managed FreightLink's above-rail services since its inception in 2004 and currently provides the majority of its crews, manages its train operations and also leases locomotives and wagons to FreightLink.

"Given the operational overlap, GWI anticipates significant cost and capital efficiencies from combining FreightLink's operations with GWA," says GWI CEO John C Hellmann.

"For the last 12 months GWA has generated US$101.7 million of revenues."

Hellmann says the railroad is a high-quality asset of great importance to the development of the mining industry in the Northern Territory and South Australia.

"It is also a vital transportation link in the Adelaide to Darwin corridor," he says.

"We believe that the rail line will continue to be a catalyst for unlocking major new mining projects that were not economically feasible without it.

"As countries such as China and India continue their long term trajectory of industrialisation, we expect to see direct benefits to the FreightLink minerals franchise, and we look forward to investing in the rail infrastructure for the long term."

During the first 12 months of ownership, GWI expects FreightLink to generate approximately $145 million of revenues and $35 million of operating income, which includes the anticipated impact of immediate cost savings.

The Alice-to-Darwin railway is used mainly for general freight services and the haulage of bulk minerals, fuel and military equipment.

It also carries the famous Ghan passenger train that runs between Adelaide to Darwin.

The bulk minerals part of the operation is primarily focused on moving iron ore, copper and manganese for export out of Darwin and Adelaide.

Both the NT and SA governments have backed the deal, with NT Treasurer Delia Lawrie saying no taxpayer-funded concessions were made to get the deal through. Lawrie says required regulatory changes would present no problems.

GWI expects FreightLink to require annual capital expenditures of approximately $9 million and to have depreciation and amortisation expenses of approximately $10 million.

"The acquisition of FreightLink is a natural extension of GWI's existing rail business in South Australia," he says.

"From an operating perspective, the acquisition is a straight forward integration, as our people are already responsible for the current train service.

"From a commercial perspective, we look forward to working with FreightLink's intermodal and mining customers to facilitate their growth, a partnership that has been limited until now due to the debt burden on the business.

"Strategiccally, we expect GWI's Australian operations to become a $275 million revenue company with the operating expertise, safety record and financial strength to serve new customers in central Australia and beyond."

GWI expects to close the acquisition and to commence operations in the fourth quarter of 2010.

OVERVIEW OF ACQUISITION

FreightLink's above-rail business currently handles approximately 60,000 carloads per year using 23 locomotives and 430 railcars. Its business is divided into two main components: general freight and bulk minerals.

General freight is primarily composed of long-haul, domestic intermodal traffic to the Northern Territory.

Bulk minerals is primarily composed of customers in the mining industry who ship iron ore, copper and manganese.

Mining customers utilise FreightLink's rail infrastructure to export minerals to Asia, mainly through the Port of Darwin and the Port of Adelaide.

For the 12 months ended December 31, 2009, FreightLink's revenues were composed of general freight (62 percent), bulk minerals (33 percent), and other revenues (5percent).

GWI owns and operates short line and regional freight railroads in the United States, Canada, Australia and the Netherlands.

Operations currently include 62 railroads organised in nine regions, with more than 6,000 miles of owned and leased track and approximately 3,400 additional miles under track access arrangements.

GWI provides rail service at 16 ports in North America and Europe and performs contract coal loading and railcar switching for industrial customers.

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