UPDATE: New QR National Railway Could Open Australia's Pilbara

Freight rail operator QR National Ltd. (QRN.AU) is considering a new railway in west Australia that could dramatically change the face of the remote iron ore-rich Pilbara, connecting smaller mining companies with export markets through a major port.

The company has signed a binding pact with mining company Atlas Iron Ltd. (AGO.AU) to conduct a feasibility study for a railway open to multiple users, running from iron ore deposits in the east and southeast Pilbara to Port Hedland, QR National said Thursday.

Access to the port would be a significant boost for junior companies, potentially opening the Pilbara and bypassing the tightly controlled rail lines of mining giants Rio Tinto PLC (RIO) and BHP Billiton Ltd. (BHP), which have fought off attempts to access their rail lines. The Pilbara already accounts for roughly two-thirds of global shipments of the steelmaking commodity by sea, much of it destined for China.

Ken Lewsey, vice president of strategy and business development at QR National, said the Pilbara offers one of the company's best growth opportunities. The company currently operates rail lines from coal mines across eastern Queensland state.

"The value of an independent railway is that we can achieve the economies of scale by aggregating the tonnages of multiple parties, as well as delivering efficiency gains across a coordinated supply chain," Lewsey said.

QR National and Atlas Iron have been informally working on plans for a railway since last year. The rail company said it is expected that Atlas would be a cornerstone user of a new railway that would serve its deposits and those of other mining companies in a staged development.

"The work done to date demonstrates this proposal has merit. It is now time to put it through the commercial and operational rigours of a joint study," Lewsey said.

Under the terms of the agreement, the two companies will share costs and resources for a study to be completed by the end of the year.

Atlas separately said rail is a key part of its plans to expand production capacity to as much as 46 million tons a year, and the new railway could begin haulage by 2015. It shipped 2.85 million tons in six months through December.

"The potential development of an independent Pilbara rail network could represent a paradigm shift for the progressive development of the Pilbara, breaking open long-standing barriers to new entrants to the iron ore industry," Atlas Managing Director Ken Brinsden said.

-By Robb M. Stewart, Dow Jones Newswires; [phone]; [e-mail]