3rd UPDATE: Miners Offer A$4.85 Billion For Queensland Rail's Coal Track Network

A consortium of mining companies on Wednesday unveiled a A$4.85 billion bid for the publicly owned coal rail track network in Australia's Queensland state, in an attempt to prevent the network being sold on the stock market as part of a broader privatization.

The Queensland Coal Industry Rail Group, made up of 13 mining companies including BHP Billiton Ltd. (BHP) and Rio Tinto PLC (RTP), is pitching its offer as a superior alternative to the state government's plans for a A$3 billion-plus initial public offering of all of Queensland Rail's coal and freight assets.

Queensland Premier Anna Bligh said the government will look at the proposal, which is conditional on due diligence.

"We will certainly look at it. We aren't making any judgements about it until we've had a really long opportunity to really examine the detail," Bligh said, according to spokesman.

The coal producers first threatened to lodge a bid in March after taking issue with the government's plan to offer the coal tracks together with the haulage carriages in a vertically integrated package. The coal producers argue vertical integration would stifle both competition and extra investment in the track network.

The state government, however, has said that a vertically integrated network would operate more efficiently because there would be a centralized approach to addressing logistical challenges faced by running a complex rail network used by multiple parties. The government must also consider how miners not in the consortium might be impacted by their competitors owning the rail track network, as well as the impact on non-mining users of the network such as agricultural producers.

The other coal producers that have signed up to provide equity for the offer are Anglo American PLC (AAL.LN), Xstrata PLC (XTA.LN), Ensham Resources, Felix Resources Ltd., Jellinbah Resources, Macarthur Coal Ltd. (MCC.AU), Peabody Energy Corp. (BTU), Vale S.A. (VALE), and Wesfarmers Ltd. (WES.AU).

QCIRG, which is chaired by former New South Wales state premier Nick Greiner, said the consortium's offer is fully funded and represents a substantial premium to what is likely to be achieved via an IPO as well as to what has been paid in recent comparable transactions.

"Importantly, our offer is able to be settled with the government prior to the IPO and will not be dependent on volatile equity markets, removing major risk for the state while also providing early settlement," Greiner said in a statement.

The state government in March appointed five banks--Credit Suisse, Goldman Sachs JBWere, Merrill Lynch, RBS Morgans and UBS--to lead manage the IPO that is expected to be Australia's largest this year.

Estimates of the value of the IPO range from A$3 billion to A$4 billion, with the government leaving the door open to retain some of the business that had fixed assets valued at A$6.49 billion at June 30.

Greiner said the mining companies, as the "natural buyers", are able to pay more for the business, and would have more incentive to invest in the infrastructure than the fund managers and individual investors that would own the network after an IPO.

Greiner said that while due diligence is needed to "firm up" the offer price, it can be assumed the final price will be around the current level, and the consortium members believe they could complete the offer in about three months.

The QCIRG offer excludes Queensland Rail's above-rail rolling stock assets and its freight business.

The miners aren't the natural buyers of the above-rail assets and will cooperate with the state government's plans to sell that part of Queensland Rail, whichever way the government decides to proceed, whether by IPO or trade sale, Greiner said.

Greiner said there are trade buyers who are interested in the above-rail assets, while an IPO would also be successful.

He said the above-rail assets alone are likely to sell for more than A$2 billion, adding to the A$4.85 billion the government would receive under the miners' offer for the track network.

"If you put the two together, it is perfectly obvious they get a better outcome in terms of cash now and in terms of cash in the future under this proposal than they would under the IPO," Greiner told journalists on a conference call.

QCIRG said Aquila Resources Ltd. (AQA.AU) and New Hope Corp. (NHC.AU) are "supporting parties" to the offer and have the opportunity to provide equity at a later stage.

Greiner said QCIRG has secured an acquisition facility of A$1.35 billion, which is underwritten by ANZ, BNP Paribas and Citibank N.A., as well as a committed capex facility of more than A$2.05 billion to fund the current Queensland Rail capital plan and "catch-up" maintenance.

The mining consortium is being advised by Citi.

-By Rebecca Thurlow, Dow Jones Newswires; 61-2-8272-4679; [e-mail]

(Alex Wilson in Melbourne and Ross Kelly in Sydney contributed to this article)