One Rail Australia Holdings Pty Ltd (AZJ) Earnings Call Transcript & Summary

Good morning, and welcome to our investor briefing for today's announcement of the acquisition of One Rail. We're based in Brisbane today. Therefore, I acknowledge the traditional custodians of this land, the Turrbal and Jagera people and pay my respects to the elders past, present and future that hold the memories, the traditions, the culture and hopes of Aboriginal Australia. We must always remember that under the ballast, sleepers, rail systems and office buildings where Aurizon does business was and always will be traditional Aboriginal land. Joining me on the call is George Lippiatt, CFO and Group Executive Strategy; and Clay McDonald, Group Executive Bulk. We will go through the presentation that we lodged with the ASX this morning, which is available on our website. At the end, we will take your questions. This is clearly an important day for Aurizon. It signals a major step forward in the delivery of our strategy, as we outlined at the Investor Day in June. This strategy is to build on the very stable cash-generative platform of our existing network and coal businesses and drive towards our aspiration of doubling Bulk's earnings by 2030. With this transaction, we extend our national footprint into South Australia and the Northern Territory. We deliver step change increases in revenue and volumes in bulk commodity markets. And we become the long-term lease holder of a nationally significant integrated supply chain. Importantly, we also add another pillar to the stable Aurizon platform that we will build upon for decades to come. We continue to seek to be a company that is strong, resilient and focused on creating value for shareholders. Let me step through the highlights. The acquisition involves the whole of the One Rail business. While we assessed several options, it was determined the combined package of rail assets would deliver greater value to our shareholders compared to acquiring individual components. Aurizon was also uniquely positioned with a strong balance sheet, operational scale and business synergies to meet the vendors' requirements in selling the business as a whole package. There are 2 major components in this transaction: One Rail Bulk, the assets will be integrated with our existing Aurizon Bulk business; and One Rail coal, which we are now calling East Coast Rail. The assets will be divested either through a demerger or through a trade sale, whichever offers greater shareholder value. One Rail Bulk is a significant and transformative acquisition for Aurizon, which aligns with our bulk growth strategy articulated at the recent Investor Day. When looking at potential investment opportunities, we assess long-term trends in commodity demand and Australia's contribution to supply. This, of course, provides bulk haulage opportunities for Aurizon. In this instance, One Rail Bulk also provides below rail assets and increased exposure to the growing demand for commodities such as copper, manganese and rare earth associated with the new economy markets for the manufacture of electric vehicles, batteries, telecommunications and wind turbines. Clay will provide further detail on the business, its markets and the growth opportunity before us. I'm confident that given the Bulk team's track record of performance under Clay's leadership that this acquisition will be successfully integrated as soon as possible. A reminder that it was only 4 years ago that Aurizon's Bulk business consisted of 17 haulage contracts that collectively lost money. The change that Clay and his team have led Bulk through has resulted in a business that is now making a positive contribution to group earnings. At an enterprise level and upon completion of the transaction, Aurizon will see a significant shift in its portfolio mix and a list in noncoal revenue. We have yet to determine the divestment option of East Coast Rail, either through a sale or demerger. Under the demerger option, we estimate that the IRR from the transaction exceeds the implied return from buying back Aurizon's shares when comparing to last year's average buyback price. The transaction is entirely debt-funded. We do not need to draw upon new equity, and therefore, we can use our strong balance sheet as a platform for growth and invest in this quality business. With the balance sheet being deployed to support this opportunity and our ongoing commitment to our credit ratings, there will likely be an impact to dividend payments for the next 1 to 2 years. Importantly, we can retain our payout ratio range of 70% to 100% of NPAT. And where we ultimately pay within the range will depend on the divestment option chosen. We remain committed to maintaining the current BBB+/Baa1 credit rating and expect that this transaction will support Aurizon's credit profile over the long term. This is due to the increased contribution bulk co has to the group cash flows, which George will talk more about shortly. Clay and George will run through detail of the respective businesses in their presentation, but here's an overview. On the map, you can see the operational footprint of the business. In One Rail Bulk, we acquired a nationally significant north-south rail infrastructure from Tarcoola to Darwin, along with the above rail operations, including the associated maintenance facilities and terminals. East Coast Rail is a highly cash-generative coal haulage business underpinned by long-term agreements. While Aurizon will not continue to own this business, shareholder value can be realized through either of the divestment option. The estimated EBITDA numbers of both businesses represented here for calendar year 2021 are based on 9 months of actual data and 3 months of forecast data and exclude any corporate and operational synergies. Moving now to the headline numbers and structure. The total cash consideration is $2.35 billion, plus an estimated $80 million acquisition and divestment related fees. The divestment of East Coast Rail is to address potential competition concerns over the ACCC. Aurizon has already engaged with the ACCC prior to today's announcement, and we intend to commit to an enforceable undertaking to divest East Coast Rail. Until that time, East Coast Rail will be operated independently of the Aurizon Group with a separate Board, CEO and management team and appropriate reporting arrangements with the ACCC. Depending on regulatory approvals, we are working towards the divestment of East Coast Rail to take place by the latter part of calendar year of 2022. As noted earlier, this acquisition extends our national footprint into Central Australia through this integrated above and below rail business. Consistent with the acquisition of the port terminals in Townsville and Newcastle over the past 2 years, today's acquisition is strategically linked to important minerals provinces and also allows an expanded service offering to our customers. This acquisition also further diversifies the commodity and customer portfolio composition. Mineral deposits across South Australia and Northern Territory are supported by global trends, including population growth, urbanization and industrialization in Asia driving demand for infrastructure development; our focus on emissions from steel production, which supports high-grade iron ore such as magnetite; a growing world population and changing -- driving increased crop production and fertilizer use and the global energy transition through the development of wind turbines, battery development, electric cars and solar panels. As noted in the IEA World Energy Outlook released just last week, 3 billion electric vehicles and 3 terawatt-hours of battery storage is projected in a net zero emissions by 2050 scenario. The IEA note that in such a scenario, the total market size of critical minerals like copper, cobalt, manganese and various rare earth metals grows almost sevenfold between today and 2030. At Investor Day, we articulated an aspiration to double the size of the Bulk business by 2030. As shown in the pro forma earnings on this slide, just over half of this aspiration has been reached through this acquisition. In addition, there will be a shift in our portfolio mix with a rising Bulk earnings increasing from 32% to 40% of haulage revenue. Given the significant contribution One Rail Bulk is making to this aspiration, we will be reviewing this long-term goal, and we'll update the market in due course. Clay's business development team will certainly not be taking the foot off the accelerator as a result of today's announcement, and they remain engaged on many opportunities in the market. Before handing over to Clay, I wanted to highlight the key points of East Coast Rail. East Coast Rail is a very strong, stable business underpinned by a long-term contract with a strong counterparty in Glencore. It's highly cash generative with a simple operating model and a relatively young fleet of assets. It has an experienced management team and will be led by John McArthur, the current One Rail Chief Commercial Officer with 30 years of rail industry experience. With that, I will hand over to Clay.

Thanks, Andrew, and good morning to everyone. When I spoke to you at Investor Day in June, I shared our aspiration to double the size of the Bulk business. To do that, we outlined our plan, grow our core, grow into new geographies and sectors and grow our supply chain services. I'm delighted to advise that the acquisition of One Rail ticks all those boxes. So let's take a look at the highlights. The Bulk team is very excited with the opportunity and prospects that the acquisition of One Rail will bring to our operation. Not only is this acquisition aligned and consistent with our strategy and aspiration to double the size of the Bulk business, the One Rail operation is a quality asset that will present revenue and cost advantages to a rise in bulk and continue to diversify our business through scope and scale expansion. As Andrew highlighted, the acquisition is a unique opportunity to grow our national footprint across both commodity markets by bringing together 2 quality businesses in Aurizon and One Rail. The Bulk business is made up of 3 generating divisions, 2 above rail operations in intermodal and bulk and the below rail network assets. I'll get into more detail of these operations later in the presentation. Today, Aurizon Bulk operates in 3 states, delivering over 50 million tonnes of bulk products each year on 500 rail services per week. We have extended into the port space with acquisitions in both Townsville and Newcastle and have been progressively developing inland terminals and first and last mile capability to support our customers. With the acquisition of One Rail, we will further diversify our customer, commodity and geographical base. And we increased our sources of revenue through the below rail and intermodal operations and increased the scale of operations by roughly 25% in train starts, 40% in locomotive power and 28% in haul volumes. Generating value through the integration of the 2 businesses will be a key focus, and we intend to adopt the same customer focus, P&L accountable model in South Australia and NT that has been part of the rapid and successful turnaround of bulk since 2017. Post acquisition, the Bulk business will assume responsibility for over 2,400 kilometers of operational track. And this is not a new business for Aurizon. It has a long and proud history of building, expanding and maintaining below rail assets. The below rail asset is a significant piece of infrastructure, with the corridor connecting Adelaide to Darwin, and it traverses some of the most mineral-rich regions in Australia. I've had the opportunity to travel the length of the One Rail track. Now having spent 5 years responsible for the below rail operations of the CQCN network, observations of the asset, in layman's terms, are it's flat, straight, long and fast. It's an [ ideal entry ] for enabling projects in South Australia and Northern Territory to get products and commodities to market. It has additional capacity that is accessible and connects directly into export ports in Darwin, Adelaide and Port Pirie. As indicated, the below rail business generates around 30% of the Bulk revenue, with the revenue underpinned by negotiate-arbitrate framework that has a concession out to 2054. This slide provides an indication of the size of the One Rail asset and the scale of rail infrastructure under management post the acquisition. As shown in the chart, Aurizon's rail infrastructure will now extend to over 5,000 kilometers when you add together the track [ vents ] of One Rail with the Central Queensland Coal Network. But to be clear, the below rail asset being acquired will be managed by the Bulk business and remain part of the integrated offer in South Australia and Northern Territory as it does today. The key call-out here is the scale of the combined business and the ability to leverage off and interchange capability, procurement and asset management processes. I'll give you an example. The CQCN has a mature asset management model, built up over many years with the aim to smooth out and optimize capital spend. This model has required thousands of hours to develop and refine and can be successfully applied to the One Rail track. Then think about the combined purchasing power of the 2 businesses. The shared opportunity across structures, rail, telecommunications and signals represents a great opportunity. The Bulk and intermodal divisions contribute 70% of the top line revenue. We like the customer mix and balance between the intermodal and bulk business units. These are vital and robust supply chains operating across terrain and distances that favor rail. The capacity of rail, its lower carbon output and the ability to transport heavy products in large quantities over long distances realize customer, community and environmental benefits. As the sole rail operator on the Tarcoola to Darwin corridor, One Rail operates intermodal services, transporting consumer goods, general cargo, construction materials, bulk liquids and special cargoes between Adelaide and Darwin. I'm really impressed by the intermodal business. It's simple, it's efficient and operates over distances in train that gives rail a natural advantage. [indiscernible] larger customers, predominantly freight forwarders and Woolworths. It's efficient as it can run intermodal services up to 1,800 meters long, approximately 3x the length of our Linfox services in Queensland and more than 100 meters longer than our Blackwater [ coal drives ]. Adding to the efficiency is the fit-for-purpose terminals in key locations, including an excellent facility in Darwin. And finally, the tasks suit rail. Due to the significant distances and terrain between Adelaide and Darwin, rail is in its natural sweet spot. At over 29,000 kilometers sorry, at over 2,900 kilometers, the Adelaide to Darwin haul is 1,300 kilometers more than Aurizon's current longest haul from Brisbane to Cairns and almost 3x longer than our longest WA haul from Perth to Leonora. The route of this rail competitive dynamics are also very different in this corridor when compared to other markets. On the bulk side, the operation has unit trains carrying bulk or containerized products, including grain, magnetite, copper, gypsum and manganese. We're confident that the positioning of the asset and the high-quality operations will continue to play a critical role in connecting the people of Northern Territory to vital southern supply chains in the bulk space by enabling the growth of South Australia and Northern Territory [ export trade ]. At our recent Investor Day, we spoke about the expanding and evolving bulk market. And you may recall, a representative map of Australia showing 1,400 mining projects from exploration through to preproduction. Well over 250 of these are located in South Australia and Northern Territory, which is a region where Aurizon had no operational presence prior to this acquisition. But as I said back in June, we know many of these products may take some time to materialize, but it is illustrative of the level of activity going on in our expanded operational footprint. Underpinning that growth are the demands from the modern economy, the resources that are critical in the process of connecting people, decarbonizing the environment, creating and storing alternate power supplies and feeding a growing and transitioning world population. As outlined in the slide, the region access by the One Rail operation holds 2/3 of Australia's copper reserves, is the second largest producer of export grain after WA with around 20% of Australia's total export grain volumes, has almost 50% of Australia's magnetite reserve and has almost all Australia's phosphate rock resource. The acquisition of One Rail is not only a bet on those trends materializing, but also a bet on Australia playing a critical part in the supply of those inputs by the quality, cost and reliability of its commodities and bulk supply chains. Aurizon has a depth of knowledge in building and operating a vial supply chains, with over 100 years experience in the coal fields and around 15 years in iron ore. It will be these skills and the lessons learned over years of successful operation that we will apply to the new economy supply chains on behalf of our customers. In summary, I'm very excited about the opportunity this deal offers. It opens up new customers, new growth opportunities and a first-class asset and team that will move us closer to our aspiration of doubling the size of the Bulk business.

Thanks, Clay, and good morning to everyone on the call. It's a pleasure to be speaking to you on an important day for Aurizon. East Coast Rail is a highly cash-generative haulage business, underpinned by a long-term agreement covering approximately 85% of volumes. Beginning operations [indiscernible] in 2011, East Coast Rail holds around a 30% share of the Hunter Valley export haulage market with almost 50 million tonnes per annum. East Coast Rail has recently extended into Queensland. As shown on the slide, there has been a step change in revenue and EBITDA this year, driven by an increase in contracted volumes. And this earnings profile is expected to be stable next calendar year. Aligned with being the newest operator in Hunter Valley, East Coast Rail has an average fleet age of just 9 years, a few years younger than Aurizon's Hunter Valley fleet and about half the age of the largest Hunter Valley operator. As well as being a young fleet, East Coast Rail locomotives also has the ability to be deployed into other standard gauge noncoal markets if desirable longer term. Although a very attractive business and close to our core operations, Aurizon will divest the East Coast Rail by either demerger or trade sale. The rationale and process for this divestment is something I'll touch on in a few minutes. Turning then to the mines of East Coast Rail services. And what you'll notice is that the quality of East Coast Rail's asset base and earnings profile is matched by the quality of the mines it services, an average mine life of approximately 20 years and the majority of coal volume ranked in the top quartile of energy content. The margin chart on this slide also shows the financial strength of the underlying mines, all profitable, noting that this chart is based on a thermal coal price of USD 100 a tonne. So we need a much higher Y-axis to show the margins today based on the coal price of over $200 a tonne. This is the type of high energy coal that we believe will be needed to effect an orderly transition to more renewable power sources, while acknowledging the sustained demand from rapidly developing Asian economies for quality Australian coal will remain for many years to come. For those that remember our Investor Day in June, you might be asking how these mines bear under our 6 Strategy in Uncertainty scenarios. The shorter answer is that mines such as these are characterized by long life, high quality and lower cost and are generally projected to continue to operate beyond the end of their rail haulage contract in 4 or 5 out of our 6 scenarios. We intend to work with the ACCC on a time frame to divest ECR within 18 months of the deal completed. This commitment is still to be worked through with the ACCC and is aimed at securing and hopefully moving the ACCC approval process along as quickly as possible. We look forward to continuing our engagement with the ACCC. The divestment will be achieved through either a demerger or a trade sale with the overarching objective being to maximize shareholder value. The separation process will be structured to minimize costs and operational disruption. This will be important to the East Coast Rail customers, employees and financiers. In the period up until divestment, East Coast Rail will operate as a separate and stand-alone business with an independent Board and management, ring-fencing of sensitive information, minimizing the overall impact of separation and ensuring it can operate independently of Aurizon. John McArthur, the current One Rail Chief Commercial Officer with 30 years of rail industry experience, is to be appointed Chief Executive Officer of East Coast Rail and leads an experienced team. John is well known to the major East Coast Rail customers, and we have confidence in his ability to deliver results for the business and shareholders. Turning to transaction funding and process. And I'd like to start with shareholder returns as that was the primary focus of our analysis as we considered buying One Rail. This acquisition is consistent with our capital allocation framework, which we have applied for many years and is shown in the diagram at the bottom of this page. As you can see in the far right box in the diagram, our framework sees us consider doing 1 of 2 things with surplus capital, either returning it to shareholders via capital management or deploying it to grow our business. The assessment of which option we pursue is based on what growth options are available to us and whether the unlevered IRR generated by that growth CapEx is superior to that available for shareholders from a buyback. In prior years, we've distributed surplus funds to shareholders through buybacks. And we confirmed at our recent full year results that we had $900 million of surplus balance sheet capacity. We've considered the rate of return of this transaction, and I can confirm that it exceeds the return available to us from executing a buyback assuming the same price as our FY '21 buyback at $4.06. In fact, this transaction is forecasted to deliver a rate of return exceeding that available from buybacks at less than $4 per share as well as delivering a higher IRR compared with buyback. This transaction is around 10% EPS accretive in a demerger scenario compared to the status quo. It is around 5% EPS accretive compared to assuming $900 million of buybacks. And it should enhance the view of credit providers to a rise in operations due to the infrastructure and new economy aligned cash flows. It's this point and the strength of our balance sheet that enables us to fully debt fund the $2.35 billion acquisition while maintaining our BBB+/Baa1 metrics. Lastly, on this page, it's important to touch on dividends. Aurizon has a proud history of consistent dividends, even through COVID in the recent China coal import bans. We confirm that we are committed to our existing 70% to 100% dividend payout range, noting that where we land within that range will depend on our divestment path. Should we demerge East Coast Rail, we expect to be towards the lower end of the range for 1 to 2 years, while a trade sale could see us towards the upper end of that range. Turning then to valuation considerations. Our primary focus was on the forecast cash flows from the acquisition and whether they deliver shareholders a more attractive return than a buyback. And I've confirmed our view that it does. But we also spent time considering the EBITDA multiple implied by our acquisition price and how that compares with other industry transactions. Our acquisition implies an EBITDA multiple of 10.5x based on the last 12 months. While that multiple reduces to below 10x when looking at next 12-month EBITDA, for simplicity and comparison purposes, we've only shown last 12 months here. Now there are 2 points I'd draw out from the chart. Firstly, you can see this acquisition multiple sits comfortably within the precedent range. Secondly, there are transactions with lower multiples, but these both occurred 5 years or more ago. Turning back to this business. And as we've said, it is comprised of 2 parts. So we felt it important to show you how we thought about valuation drivers of those component parts in the table on the right. Firstly, East Coast Rail. And before I get asked the question, I can say that I'm not going to give or put a specific valuation on East Coast Rail because that wouldn't make our trade sale process very interesting. But I will say that it has stable returns and cash flows. It's solely above rail haulage and predominantly exposed to thermal coal. Therefore, its implied multiple would be lower than 10x. The Bulk business, however, is exposed to many commodities that are forecasted to have strong demand due to investment cycles in new economy metals and agriculture. It is an integrated above and below rail infrastructure business and therefore should be viewed at a premium to 10x. When viewed on a combined basis and having regard to the growth profile of the Bulk business, we believe the acquisition price represents good value for shareholders in an environment when multiples for rail and infrastructure have been steadily climbing over recent years. Let's now talk about funding. It is the strength of the Aurizon balance sheet and our relationship with our banks that we believe gave us the advantage in the sale process. As the headline suggests, we have achieved funding certainty for this transaction and that's thanks to the strong support we've received from our relationship banks. Each of these banks has underwritten debt facilities for both Aurizon operations and East Coast Rail. For operations, the above rail entity of Aurizon, the total debt required is $1.93 billion, which will come from a combination of existing and new underwritten bank debt. We will be turning out this bank debt into capital markets, consistent with our existing funding strategy. We have had recent success doing just this with over $1 billion in long-term debt capital market issuances in FY '21. This includes the intention to issue a hybrid in order to access what would be a new pool of capital for Aurizon. This further diversifies our funding sources, supports our credit rating, and we like the long-dated nature of this form of capital. The next slide shows the illustrative sources and uses consistent with the debt numbers just mentioned. The one item I'll call out is our estimated acquisition and divestment costs, which we expect to be in the order of $80 million. This figure reflects costs such as stamp duty and bank commitment fees as well as adviser and insurance-related costs. Turning to the divestment process for East Coast Rail. As I outlined previously, there are 2 potential options for the divestment of East Coast Rail, with the final path dependent on whichever creates greater shareholder value. Firstly, a demerger would involve regulatory and shareholder approval, and we are working towards that being executed 6 to 9 months post completion. In this scenario, a rising dividend would likely be towards the bottom of the current payout ratio range for a year or 2. Our shareholders would also benefit from additional distributions from East Coast Rail. To give you a sense, those distributions are likely to be higher yielding than Aurizon, given the East Coast Rail funding structure and the strong contracted cash flows of the business. Secondly, and shown on the right, a trade sale would result in a rise in regaining balance sheet capacity and higher dividends are then possible, although shareholders would not benefit from ongoing East Coast Rail distributions. This option would also be subject to a purchaser tabling the right offer and receiving regulatory approval as well as the consent of the banks to extend the current debt financing package should a purchaser require it. Regardless of the decision taken, we remain committed to our current BBB+/Baa1 credit ratings for both Aurizon operations and network. For East Coast Rail, as I've mentioned, we have the commitment of underwritten bank debt with the potential to term out in capital markets. We are targeting an investment-grade credit rating. And we've done a lot of work on this point, so we can say with confidence that it is achievable. Available debt markets for East Coast Rail include private placements in U.S. dollars, where there have been recent trades in coal-related companies in recent years. Lastly, the transaction timetable. In terms of key steps to completion, the focus is on regulatory approvals, with the main item being our ongoing engagement with the ACCC for its approval. We're hoping to complete the transaction early in calendar year '22. From completion, there will then be 2 parallel streams mirroring the separation of the current One Rail business. The Bulk business will be integrated under the leadership of Clay. While that will happen from day 1, we do expect it to be a 6- to 9-month process for full integration. And that's when we should start to see benefits of the larger footprint. The East Coast Rail business, as I said earlier, will go through a dual-track demerger and trade sale process. The preparation for that has well and truly commenced. We're aiming to make a decision on which pathway creates the most shareholder value in the months post completion. In terms of executing the divestment, whether it's by demerger or a trade sale, we're expecting the earliest completion would be towards the end of calendar year '22. Finally, I'd like to finish by saying that we're excited about this acquisition. The geographic and infrastructure footprint of the Bulk business provides us with a great platform to enable the growth of the minerals and agricultural sectors of South Australia and Northern Territory. Thank you, and I'll now hand back to Andrew.

Thanks, George. Just to recap on the key points and the strategic significance for Aurizon. It is a transformative transaction that achieves a step-change growth in bulk revenue, secures quality assets in new locations and opens up opportunities in new markets. It's an investment in growth and the long-term drivers of demand for commodities that are needed for new economy markets. Having worked in and alongside the mining industry for 30 years, I believe that the best and most reliable investments are large, long-life, low-cost assets that are resilient regardless of the prevailing commodity market conditions. One Rail Bulk in South Australia and Northern Territory is such an asset in a region rich with commodities, of which the world needs more. I look forward to the next chapter in the bulk story. Happy now to take your questions.

[Operator Instructions] Your first question comes from Anthony Moulder with Jefferies.

If I can start with Clay, please. Obviously, we sat through the presentation in Newcastle, you talked about doubling the size of bulk. How important is One Rail to achieving that as an objective, please?

Yes. Thanks, Anthony, you can see the -- on the chart, it moves us from $140 million today to $220 million with the acquisition. And I think Andrew was quite clear in that, that might lead to some reviewing and resetting of some of the targets that we've got today. That may -- it does open up a whole new region for us to grow into Northern Territory and South Australia, so it gives us a great opportunity to achieve that growth aspiration. It certainly accelerates [indiscernible].

But I guess the other way to ask it is, did you need to have One Rail to double bulk's EBIT growth or EBIT level?

No. As we indicated, the bulk market is about $10 billion today, moving to $13 billion in the future. So there's plenty of opportunities. This is just -- it accelerates that doubling in size, I guess. But no, there's plenty of other opportunities, both brownfield, greenfield, other small M&As and bolt-ons that we're looking at.

Okay. So -- I appreciate it. Northern Territory, South Australia seems like a different market to the other ones in which you're currently in. How important is that integrated offering to capturing a lot of that growth that's coming out of that corridor, please?

When you think about that -- what we like, we like an operation that's close to #1, #1 or #1 -- close to #1 in its market. That's One Rail in the South Australia and Northern Territory market. And we've always said we like a preference to assets that have strong land and location fundamentals, where they're located and what their exposure is. So in the NT and SA in this deal, it kind of ticks both those boxes. They are #1 in their market, and we like the land and location exposure we get through the asset. But if you look at the customer mix and the portfolio of customers, they're not too dissimilar to the customers we have today in the rest of bulk, albeit that we get exposure to below rail and we get exposure to a strong intermodal market, moving -- connecting supply chains from the South up into the Northern Territory.

Yes. I guess the integrated offering that we've seen in Queensland, you're now bringing that into South Australia and Northern Territory. How does the customer benefit from that integrated offering as opposed to someone else turning up to run trains on the network that you're leasing in that market?

Yes. What we like about the integrated offer here is kind of the improved operational investment coordination you can get from it. So when you look at it, the benefits integration gives you is you're not going to suboptimize below or above rail or vice versa. So that's the first thing. And then very much taking that supply chain view and supply chain mindset when you look at [indiscernible]. But as far as expanding our supply chain services, we'll go where the customers want us to go. And so if there's an opportunity to expand other services connecting to the One Rail asset and the One Rail core rail proposition, we'll look at those opportunities as we get our feet under the desk.

All right. And just a question for George on the debt. There's, obviously, a lot of debt going in for this acquisition. You talked of a hybrid. Is that hybrid necessary to free up capital for further acquisitions if that's a large part of how you grow from here in bulk?

Yes, Anthony, the short answer is it could do. We like a hybrid, though, in our capital structure for a range of other reasons, including the long-dated nature of it and the flexibility it gives us. Of course, if -- the other point around funding and balance sheet is that if we opt the trade sale of the business as opposed to demerger, we will regain more balance sheet flexibility. So I still feel we've got a strong balance sheet. We're still a strong investment-grade rating of BBB+/Baa1, and we have flexibility going forward.

Your next question comes from Jakob Cakarnis with Jarden Australia.

Just one off the top for Andrew, if I can, please. What was the motivation for the deal structure as you structured it at the moment? Obviously, there's a focus on bulk. But I just want to get a better understanding of the divestment process and then the potential for an in-specie distribution or demerger.

Yes. Look -- sure. Look, the thing that drove where we're up to is that the seller wanted to sell a whole package. That was the primary starting point. As far as the decision to divest East Coast Rail, that is driven by ACCC proposal that we think allows us to best position the transaction from both our final approval and also from making it timely in execution. So that's actually what drove it. George, I don't know if you want to add anything as well.

Look, I think the second part was around the demerger and in-specie distribution process. And I think that's important to touch on because that drove that comfort with some of the structure in that we could fund an acquisition of the whole. But importantly, we've got committed debt for the Aurizon operations side and committed debt that would go with East Coast Rail if it was to demerge. So that gives us funding certainty and our shareholders' funding certainty if we are to demerge. But just an underlying point I made earlier, we will go through a dual-track trade sale and demerger process and make that decision post completion.

Okay. Maybe one for Clay or maybe, George, if you can continue. Are there any differences in the cash flow profiles between the One Rail business that you're picking up and your existing operations?

Do you want me to take that?

Yes. Well, look, let's tackle One Rail in 2 parts, the East Coast Rail, which as we say for calendar year '21, about $140 million of EBITDA. The sustaining CapEx is generally less than $10 million. So highly free cash flow generative when you look at East Coast Rail. In terms of the Bulk business, it is different because it's got track infrastructure. And with that there comes a higher sustaining CapEx level. So the way to think about that is probably $20 million to $30 million of sustaining CapEx. When you normalize it over time, there will be some investments that may be made depending on customer growth, but that's how to think about the sustaining CapEx over time.

Okay. One final one from me, guys. With the facility increases, is there any amortization schedule on either of the facilities for the Bulk business or ECR or maybe a rise in operations in ECR, if you can separate those? And how do we think about those repayments, if there are any, through the cash flow profile, please?

Yes. So on operations, it's pretty similar to our existing term debt facilities on the Aurizon operations side, and we will look to turn that out in debt capital markets as we've had success doing. On the East Coast Rail side, yes, there is an amortization profile. Those facilities for the $500 million range from a term of 2 to 5 years. The amortization profile was a long period of time, but we will look to turn out some of that debt in capital markets, which should give us a more flexible profile. So that's something we're going to be looking at over the coming months.

Okay. One final one, sorry. Andrew, are the management incentives aligned to any of this process, including the divestment and/or integration, please?

No. There's no specific incentives that are targeted. There is a general incentives about growing the Bulk business over the long term.

Your next question comes from Andre Fromyhr with UBS.

Just curious about the potential improvements in the One Rail and Bulk business. Are you able to give some color about how the above rail margin compares with the existing Aurizon Bulk margin? And is any of that potential part of your synergies estimate? Or is there sort of potentially more on top?

George, why don't you talk about margin, and then I'll get Clay to talk about synergies?

Yes, sure. Thanks for your question. You can see from the material we put out that the EBITDA margin and the EBIT margins are slightly higher than our existing business, and that's just a function of it being above and below rail. But they're not dissimilar. So they're not a world away from our existing business. So the EBITDA margin is about 32% when you look at calendar year '21. So that hopefully goes to your EBITDA margin question. I might hand in to Clay.

Yes, thanks. I think we highlighted in the presentation, we're estimating synergies to be between $7 million to $10 million annually, and they'll be achieved through a range of opportunities and in a structured process when we look at procurement, leveraging assets and rolling stock, leveraging capability and systems and then applying the bulk operating model under the South Australia and Northern Territory business. But like we said, this is a good business. So we expect benefits and opportunities to flow both ways. And we look forward to the value we can unlock when we combine the 2 businesses.

Okay. And has the undertaking with the ACCC -- like how progressed is that? I think you indicated it hasn't been signed yet. But is there still some uncertainty about specifically what assets or what combination of assets need to be divested as in could it be less than the One Rail coal business as it stands today or potentially would you sell some other existing Aurizon assets with that deal?

George, I might get you to run through that now.

Sure. I'll take up the first part, which is how progressed is it. It can't be finalized until the ACCC goes through the approval process. So we have put a draft undertaking to the ACCC. And we're looking forward to engaging with the ACCC through their improvement process. In terms of what we'll look to divest, we're trying to keep it as simple as possible because that's the best way to expedite, we hope, the approval process. So it is the One Rail coal business, we call it East Coast Rail. That will be divested. We haven't looked or proposed to divest any more or less than that. That keeps it simple. It keeps it clean. And the last thing I'd note is that, that's a business that ran independently before One Rail or Genesee & Wyoming Australia, as it was then called, acquired that business in 2016.

Okay. And just one more, if that's okay. Can you just describe a little bit of the nature of the regulation of the new below rail assets you'll be acquiring? Is it comparable to the Queensland assets? And in particular, you made a comment of additional capacity sitting on those assets. Is that -- is there potential value to grow into that capacity? Or is it like other sort of regular assets where you need to invest for the right to earn more?

That sounds like a great question for Clay.

Yes. First of all, there's existing capacity on the line today. So that capacity, as demand comes on, is -- can be accessed immediately. On the second part on the regulation, it's a negotiate and arbitrate model, which most of you would be very familiar with. It's regulated by the Essential Services Commission of South Australia. And fundamentally, it provides access seekers with the right to access the infrastructure and arbitrate if we can't come to or the agreement can't be reached on those below rail access charges. And sorry, can I add -- it's not comparable to the CQCN access arrangements. Now it's different -- it's light touch regulation more comparable to probably Brookfield ownership of Arc in West Australia.

Your next question comes from Cameron McDonald with Evans & Partners.

Just a couple of questions from me. Can we get a split on the assets that have been acquired between East Coast Rail and the Bulk business, please? What's the value of them in aggregate terms?

George, I'll let you...

Yes. Look, we'll give more detail on that, Cameron, obviously, when we go through our half year results and we look at the net asset value. What we've tried to give you, though, to give you a sense is the breakdown by revenue and EBITDA and also the -- how we thought about valuation at an aggregate level.

Yes, I suppose the question goes to the point, though, that to work out the accretion that you've highlighted, we need to sort of understand what the depreciation levels are across it. So -- that's -- and obviously, any goodwill isn't being depreciated.

No, correct. That's right. And that acquisition accounting and purchase price allocation is something we'll go through over coming months. And we'll give further detail at our half year results and beyond.

Okay. In terms of the incremental debt facility that you've taken on, so the $500 million, so you said that you had existing bank relationships and new bank relationships. How much was contributed by new bank relationships, please?

Yes. Cameron, just to clarify, we have existing facilities we're drawing on and new facilities, but the banks that supported us on this were 3 of our existing relationship banks. We have 10 relationship banks to give you a sense of that.

Okay. So 3 of those banks. And were any of those domestic banks?

Yes.

Okay. And if I look at the split of the debt, so you've previously said you had $900 million worth of additional headroom at the Aurizon level. I mean -- so if I then look at the -- take that $900 million off the $1.9 billion that you're incurring for the Bulk business, you're incurring a bit over $1 billion worth of incremental debt on $80 million worth of revenue -- sorry, $80 million worth of EBITDA, that's a 13x leverage. Like so how do we think through that, please?

Yes. Look, I wouldn't say that's the right way to think about it. The way I think about it is this takes Aurizon operation debt profile to 3.1x net debt to EBITDA. And we think that's very sustainable. To go to the specifics of your question, how do you go from a $1.9 billion debt facility for Aurizon operations from what I said at full year results where we had $900 million in capacity. You're adding $80 million of EBITDA. So think about that as 3 turns of EBITDA takes you to about $300 million. And then the other $600 million broadly to bridge the gap is a combination of 2 things. Firstly, we're of the view, having done a lot of work, that the rating agencies will look at lowering our thresholds, given the nature of these earnings. Infrastructure earnings leverage to noncoal high-growth commodities. So that's the first driver of the $600 million. The second driver is, obviously, we're talking about lowering dividend to the bottom of that payout ratio range for 1 to 2 years. That assumes that the merger scenario, if we are to trade sale, then it will be different. It will give us more balance sheet capacity and would be towards the upper end of that payout ratio range.

Yes, understood. So final question from me. Just in terms -- you've highlighted the strong cash flow conversion in East Coast Rail. Can you give us a sense of what that sort of percentage conversion of EBITDA is, please?

Yes. Well, let me answer that question like this, the sustaining CapEx profile is generally less than $10 million. So if you're talking about free cash flow pretax, you're talking about $120 million to $140 million is the way to think about it. Now obviously, what East Coast Rail does and their management team does to grow that business would have an impact on that free cash flow range, but it's really strong free cash flow conversion when you look at the earnings relative to the CapEx. And that's a function, as I said before, a really young fleet, average age of 9 years.

Your next question comes from Paul Butler with Crédit Suisse.

Congratulations on the deal. I just had a question for Clay. You mentioned before that there is spare capacity on the north-south infrastructure. How much spare capacity is that?

Paul, I'll have to -- we'll have to do some more work to understand fully how the business operates. But it's running sort of 6 to 7 intermodal services a week, going -- traversing the whole length of that track. So fundamentally, there's a fair bit of capacity there. Then it's got sort of 6 kind of bulk circuits, if you want to think about it that way, kind of whether they be unit trains for copper, manganese, iron ore, magnetite, et cetera. So -- but in comparison to networks that we operate on and networks that we manage today, there is sufficient capacity there to grow.

Right. And is it relatively straightforward to increase the capacity if at some point in the next 32 years if that makes sense?

Yes. I'd love to be able to say that I'm building additional capacity on that line as volumes increase significantly, and now it's building passing loops. And we've got a pretty long and deep history in doing that sort of stuff in the CQCN. And so yes, that's fundamentally what it is. It's just giving the opportunity for trains to more terrains to diverse, which is kind of building a little bit of additional infrastructure, something we know a fair bit about. But it will be a long time before that's required.

And -- I mean one of the things you flagged is the nature of this asset puts it in the sweet spot for the sort of the road versus rail option. Is there an opportunity to attract more volume from road to rail in this corridor as you see it at the moment?

It's performing pretty well in that kind of talk about the road to rail dynamic. If you think about the 2,400 kilometers that the track traverses, not all of that is One Rail track. It goes across ARTC and then hits Tarcoola and heads north to Darwin, but 2,900 kilometers from Adelaide to Darwin. There are tracks that traverse that. We think the market share is somewhere around 80% to rail, 20% to road. So there's some opportunity there. But if you think about that 20% to road, it's probably very dedicated road for specific products, et cetera. There's always a place for road and rail together. And in our existing businesses, we look at how you get the product to the rail, how you get the product to the track. And so there's always that opportunity to integrate road and rail. And when we get to understand this business and the market a bit more, we'll have a look at those opportunities.

Okay. And you mentioned before there's a business improvement opportunity here of $7 million to $10 million per annum. So what's the sort of the total quantum over what period of -- I mean what number of years are you talking about that sort of rate of increase?

Yes, I think that's what we'd be targeting annually, that $7 million to $10 million, yes.

Sorry, is that business improvement or is that driven from growth?

No, that's synergies, when you put the 2 businesses together, the $7 million to $10 million annualized synergies. Yes.

So Paul, $7 million to $10 million is pure business improvement, growth of the corridor, which Andrew and Clay talk to would be on top of that.

Okay. Okay. So it's $7 million to $10 million in total.

In total synergies.

Synergies.

The rate would be on top of the $7 million to $10 million, yes.

Yes, I understand. And just a couple of others I just want to ask about. The -- you've said that the court case versus Genesee & Wyoming is still on foot. Does this transaction change your view of what you could get out of that case in terms of the magnitude of the outcome, if you like?

Paul, I understand where you're headed with the question. But because it is in front of court as we speak, it's just not safe for me to talk about it. But it is -- but the court case is proceeding.

Okay. Can you give us any color on time line and where exactly it's up to?

Look, just -- unfortunately, no. It's in progress. It's a slow moving court case, but one that we'll now be proceeding -- progressing with enthusiasm.

Okay. And just one final one is, in the Bulk business that you're acquiring, there's a pretty high exposure to iron ore customers. Where do those customers sit on the cost curve? And what's your view on the risk around those customers?

Do you want to start or -- okay.

Yes. Thanks, Paul. There's currently 3 iron ore customers in there. And like the rest of the iron ore customers in our portfolio, they sit sort of high on the third quartile or into the fourth quartile. We're discussing this earlier. The first, second and sort of most of the third quartile is made up of the majors, Rio, BHP, Fortescue, Vale, et cetera. So they're kind of consistent with our existing portfolio. We like the fact that the region has high exposures to magnetite. And you can see in the pack what that exposure is. And if you believe in the move to green steel, magnetite has got a big role to play in that. So we're excited about the future-facing opportunities with the magnetite region that the South Australia and Northern Territory hold.

And look, Paul, as somebody who spent a lifetime in mining and hell of a long term in iron ore, I'd say, that's the -- if you want to believe the hydrogen green steel, steel manufacturing industry, particularly probably driven first out of Europe, that whole magnetite thing is going to play extremely well into it. I will say, Paul, though, I'm not a believer that it's going to happen quickly, as quick as a lot of the proponents that currently about talk about how quickly it's going to happen, but it will happen eventually.

Your next question comes from Rob Koh with Morgan Stanley.

Congrats very much on the deal, obviously, a huge amount of time and effort going into these. My first question, just around the East Coast Rail, which you mentioned will have a separate Board and management. Can you give us a sense of -- is that additional cost kind of already embedded in your -- in the numbers here, or is it material?

George, do you want to talk through that?

Sure. So no, it's go-forward cost, Rob. So when we talk about $140 million of EBITDA, that's not in those numbers at the moment. To give you a sense of what we think that will be, around about 5% of EBITDA is probably the way to think about it.

Okay. Sorry, just -- did you say 5%?

5% of EBITDA.

EBITDA, great. That's very helpful. And then I guess, just following on, I guess, from Cam McDonald's question about the debt headroom. And I just wanted to make sure I understood. In your demerger scenario, where you are going to be taking the dividend at the Aurizon to a lower payout ratio -- at the lower end of the payout ratio, that might save, I guess, $120 million, $130 million a year kind of thing. And I guess that, over a couple of years, fills half of your $600 million gap. Is that the right way to be thinking about that?

That is, Rob. And then the other half of the gap is, as I mentioned, and we've done a lot of work on this, we believe Aurizon operations rating thresholds for BBB+/Baa1 will be reduced as part of this deal. Our current rating threshold is 50% of FFO to debt. Post the transaction, we believe it will reduce -- that gives you the other half of that $600 million that I talked about.

Yes, yes, kind of a quality improvement headroom measure.

Exactly.

Yes. Yes. Cool. Cool. Sounds good. Okay. And then for the below rail part of One Rail Bulk, I guess, it sounds like the intention is to just keep that integrated for now. Is there an option to divest that as a separate infrastructure asset at some point?

George, I know [ you're sort of good ] about that.

Yes. I mean, I think -- I talked about the quality benefit and you called it out, Rob, the quality benefit that we get from a rating agency perspective. That's partly due to infrastructure and the quality of that infrastructure asset being part of our operations business. The other thing Clay touched on is the ability to provide customers with an integrated service, we think, gives customers a better outcome. And so that's another reason that we don't think, strategically, we would want to separate the below rail from the above rail, works well today. We want to keep it that way.

Yes. Okay. Sounds fair. And then just a final question, if I can throw in an ESG type question. There's obviously a pretty big physical footprint here. Are there any kind of special flaura and fauna requirements? Are there any biodiversity offsets with the business?

So look, we did -- obviously did a very strong due diligence, particularly in the whole ESG space, and we're comfortable that we're not exposed in any of those areas. I mean if you want -- I mean no, that's...

Your next question comes from Scott Ryall with Rimor Equity Research.

Andrew, this is probably for you, it's more a high-level question, I guess. The One Rail asset base itself looks fine to me. I guess the question I have is it looks to me as though, given Macquarie didn't want to sell the 2 assets separately, that you've basically taken on the risk for on selling the East Coast Rail business, given the 2 are pretty easily separable. It's not that -- I don't think it's necessarily obviously cheap in terms of taking that risk despite the multiple chart that George talked to, partly because of where Aurizon trades itself. So I guess I'm wondering why take that risk? I know they wanted to sell the business together, presumably, that's because they thought it would be difficult to sell East Coast Rail. So can you actually do anything interesting to that business in order to make it more saleable when it comes time to divest? Because to me, if you're going to sell it as it is, the biggest upside for you is you don't have an active competitor for 12 months while you go through this process. But maybe we've got to wait until you sell it, and then we get a chance to look at what the actual multiple is for the One Rail business. But that's only 1/3 of EBITDA -- a little over 1/3 of EBITDA. So I guess, I -- it's a long-winded question and it's kind of rambling, but I'd love you to talk through the risk transfer and why you're better off taking that risk than Macquarie, please?

Yes. Look, sure. And thanks, Scott. We did -- we have clearly honestly thought hard and long about the issue. Just at one point, I'd say, just the way the -- from an ACCC point of view, competitive point of view, the East Coast Rail is held completely separately from Aurizon management. So your comment about some sort of effect on competition is not correct. It will -- they are currently a competitor. They will be a competitor through the regulatory process, and they will be the competitor after the regulatory process. So just to clear that one out. Building on that, the reality is we won't be running East Coast Rail. So we are not going to be -- a very, very confident individual has been chosen to run that business. And indeed, an individual that was involved in setting up many franchises that go the original forerunner services. I believe it was Freightliner at the time. So very confident management team, but not something that's arising itself is going to get involved in. Look, the reality is we have a dual-track process in play, and that gives us an alternative. And I think that allows us to manage this with something that was available. Our tool is available. That's not readily available to others. And from my point of view, that allowed us to -- we can -- we are able to execute this in one way or the other. We haven't made our mind up about what that will be. From our point of view, while I totally acknowledge your point of view about risk transfer, the reality is that ability to run a dual-track process, from my point of view, negates the risk. And then when I balance it against the strategic opportunities that exist for One Rail and many of the ancillary benefits that come as an outcome of finally doing the bulk integration, it wasn't a difficult decision. Although I would not, for a second, want you to think we didn't think through it long and hard.

Right. But are you trying to suggest Macquarie couldn't do an IPO?

No, I'm not...

And it's harder than a merger, I guess.

I'm not going to get into what Macquarie's issues may or may not have been. What I'm going to get into is how we thought about the process and the reality of where we got to in the transaction.

Your next question comes from Ian Myles with Macquarie.

Really simple one first up. You've given us a bit of a profile for the East Coast gas over the last 3 years of earnings. Can you maybe articulate the actual earnings EBITDA profile of the bulk? Because my math might suggest it hasn't actually improved in the last 3 years.

George, I get you'll take...

No, it's been pretty flat the last 3 years.

So what's changed to make this actually turn around from the last 3 years where the resource burn has still been occurring to becoming a growth business?

Clay, can you please talk about the growth business?

Yes. Thanks, Andrew. I think how we're thinking about it in getting in there will take a short- and long-term view of the asset. And in the short term, we need to learn about the business, learn about the market, learn about the customers. And if you think about sort of bulk's track record in growing businesses, we'll apply some of that mindset back into the One Rail asset. So we know that this is not a turnaround task, but it's an opportunity to bring 2 quality businesses together. During that sort of early phasing, we'll be looking at extracting those synergies, $7 million to $10 million annually. But [ Matt ], it's about the positioning of this business in its market. And as I said, it's #1 in its market and the fundamentals that we like about the land and location and exposure to future markets. And we can already see that in some of the work we did in the due diligence. And so the opportunity to grow into the -- grow based on those macro forces that we've all talked about, it will be our job to make sure that the business is well positioned and capable of capturing those growth opportunities as they come.

How significant is the Beetaloo gas development for the business? Is it actually something where you can tap in by providing equipment services? Or is that sort of pie-in-the-sky stuff?

It's not material.

Yes. I mean it may be in inputs into that operation, but that's not factored into our business case. So that would be upside to how we modeled it.

And the track itself has a contingent liability of $100 million or an obligation to spend $100 million up to 2030. Can you maybe give a little bit of color of what that -- what triggers that obligation?

Clay, do you want to...

Yes, that's an obligation by the concession holder to make sure that the track is maintained at a certain level. And some of that work is underway [indiscernible]. There's about 100 kilometers of track -- of rail renewal underway.

Is that the upgrading from the light rail to heavy rail track?

That's correct. That is correct, yes. So that's just an obligation to make sure the asset is maintained at a certain level.

Okay. So is that sort of the forward -- we should think about that as the maintenance CapEx for the asset? Or is that above and beyond that maintenance CapEx?

Yes, it's generally above and beyond, Ian. And track, being the way it is, it will depend on the growth profile. And that will be more one-off, those types of CapEx spend that you've just touched on and Clay touched on.

Okay. On the debt side, I just have to say I got a little bit confused by the numbers and apologies for being ignorant. The -- you talked about sort of that $900 million of delta of borrowing extra and you mentioned retaining $300 million of dividend, and there's that $600 million difference where you inferred lowering of thresholds. Of that $600 million, how much is actually going to be taken up by using a hybrid security to give you an element of equity count in there?

Yes. It's probably not you. It might be my way of explaining it. So let me break down the $900 million. There are 3 parts. There's the benefit of the earnings we're acquiring. The second part is the dividend lowering for a year or 2, assuming a demerger. And the third party is the rating agency thresholds coming down. Those are the 3 parts.

Okay. And so the need for the hybrid is to effectively give the balance sheet capacity to do further transactions, which Clay may dream up?

That's one way to describe it, Ian. I think...

Well, [ it's hard to know if ] you're doing anything in coal.

Yes. Well, consideration of the hybrid will be in parallel with the dual-track demerger and trade sale process. So trade sale of the business will give us more flexibility as well if we choose to go down that path.

Okay. That is -- just -- you said 5% drag cost the list for the East Coast Rail. Is that including listing? Because I haven't seen many companies are able to put a listing together with less than $10 million to $15 million.

Yes. We think that will be achievable in, but we're still working through our preparation for the demerger process. And the last thing we want to do is spend too much money on the demerger process if we've got a buyer to try sell it to.

And one final question, is there any tax benefits? Or is this company coming clean to you?

Coming clean is the way to think about it when you model it.

Your next question comes from Owen Birrell with RBC.

I've just got just one quick question. Just on my numbers, the diversification benefit looks like it's only extending your noncoal EBITDA from about 9% to about 14% to 15% on a pro forma basis. And it looks like it's hardly a game changer for Aurizon as a group on what appears to be a fairly complex and high-risk transaction. I'm just wondering whether the amount of balance sheet and management resources you've used to execute this transaction, is that an indication that the cupboard is relatively bare in terms of other near-term opportunities to diversify through M&A?

Look, I mean, I've been saying ever since I arrived at Aurizon that the opportunities for M&A are few and far between. And that's the reality of the situation. I mean it's your view that it's a complex transaction. But the reality is there's a number of steps in it as opposed to complex. But maybe that's just a different reaction to that one word.

Yes, sure. No, but -- that's fine. And I'm just wondering, look, I understand, I guess, the strategic opportunities that this may provide up and down that north-south corridor. The corridor growth opportunities that you sort of referred to previously, does this increase the upside of the previous guidance of doubling Bulk earnings? Or is this just getting you to that point of doubling?

No, it will increase.

And are you able to give us a sense of, I guess, how much beyond that we can kind of think about as of near term?

No, no. I don't think I'll be doing that today.

Your next question comes from [ Andrew Hodge with AZZ ].

[ AZZ ]. Just had 2 quick questions about the Bulk business. The first one was, in terms of the above rail, I think you had mentioned for East Coast Rail that there was a mine life of 20-plus years. On these ones, it looks like iron ore is probably about 2/3 of your volume, let's call it, 9-ish million tonnes. Can you give us a rough idea about how long those 3 miners that you said that are there have left as mine lives?

Yes. I think if you -- the best way to think about it is the customer base or the Bulk customer base of One Rail is very similar to that of the rest of the Aurizon Bulk businesses. So we've got to spec a whole kind of diverse range and portfolio of customers who have a range of mine life and a range of extension plans and a range of exploration plans that sort of contributed to that portfolio. So I don't think I was going to get into each individual mine life. But through the due diligence, we can see that some of those mine lives have a longer sort of and more -- and sort of tailored mine life compared to others. But it's kind of a mixed portfolio.

I mean Peak Iron, they only meant to have 2 years, Nathan River is meant to have similar. And then SIMEC is probably the only one left. So I guess I was just trying to work out how much of it is based on the steel plant staying open to be able to try and keep exporting at those levels?

Well, if you think about -- I think we talked again about this earlier, when you think about when the global financial costs, that iron ore continued to be exported. So it's around 60-sort-of percent. [indiscernible] has a good end market. We like -- we kind of like where it's positioned. So we're confident that will continue on. Now there's -- like I said, there's other more juniors in that portfolio as there are in the rest of the bulk portfolio. But there's also other growth opportunities that One Rail are in discussion with on bringing new volumes on to the track.

And look, [ Andrew ], one of the things that I got my head around was if you absolutely -- and you always worry about what happens in the next year or 2, that's one thing. But you balance against this being a set piece of enormously long infrastructure running through the heart of 1,400 projects that -- and they won't all come on at all, and they will take a long time. And we're not in control of any of them. But the thing we have is the asset, and it's there, and the projects -- many of those projects will have to come to the asset over time. And a lot of those products or a lot of the materials that actually are in those -- that would be sourced from those projects are ones the world wants more of, not less of, like coal.

Okay. And then my only other question is just on the below rail side, so I think sort of 30-ish percent of the revenue. The review about potential excess revenues is meant to be coming out next month. Is the South Australian government giving you any kind of indication about what's happening for that rail line? And how to kind of think about things over the next 5 years?

I don't think -- we're confident with the report that the regulator will support how the business is managing the below rail asset.

Your next question comes from Nathan Lead with Morgans.

Just 2 or 3 from me, if I could. The first one, just on the trade sale option for the East Coast Rail, could you just talk about how deep you think that the pool of potential bidders is, given the coal exposure and the ESG sort of headwinds out there and how you got confident on the price you might be able to achieve in such a transaction?

Yes, Nathan, George here. Look, I think the one thing that we've done that's important is put in place our debt package for East Coast Rail, that goes with East Coast Rail. And that's one of the big questions I expect any potential bidders in a trade sale. We'll ask and we've got that locked in, so that's critical. In terms of then how we thought about valuation, I talked through thematically that we see that business trading at less than 10x EBITDA, EBITDA being $140 million. In terms of the depth of the buyer universe, we've done preliminary work on that. Obviously, the first step in that process is this announcement today, and then we'll find out more as we go through it and consider that in parallel with the demerger. I mentioned the free cash flow and the free cash flow yield. It's a very strong free cash flow yield from this business. So whether it's demerger or trade sale, we think that will be attractive.

Yes. Okay. And then secondly, I suppose this goes into maybe the rating agencies' sort of considerations in terms of quality. But could you talk through just average contract term for the retained business that you'll have from One Rail? Or is it just really pure volume risk?

It's got -- again, got a whole different portfolio of contract lengths. Some have been renegotiated recently, some undergoing renegotiations. Some have been negotiated and are in place. So if you think about it, though, under -- you guys quite often ask and are interested in the take-or-pay side of the business, if that's sort of the question on exposure, the take-or-pay positions are different for each of the customers across the One Rail portfolio. But as an indicator, the aggregator take-or-pay is better than we have invoked today and probably more akin to our coal business.

Right. Okay. And then finally, I suppose you guys have been looking at picking up little port acquisitions around the country. Is there opportunity further to sort of fit in with, I'll call, opportunities, I suppose, in Darwin and Adelaide?

Yes. Look, I'd say, Nathan, we're very focused on this transaction. I mean as far as what may happen in the future posted, it's very much about where our customers' needs are, and we'll follow that lead.

Your next question is a follow-up from Jakob Cakarnis with Jarden Australia.

Just conscious of time. Can I just ask again just about management alignment with the deal and incentives. Andrew, if you could maybe outline why it wasn't decided that there'd be KPIs for management or any sort of milestone payments attached to this, please?

For -- when you're talking management, are you talking me, or are you talking like...

The AGM team, please, yourself, including Clay.

Yes. Okay. Thank you. So look, the way I think about it is we have -- and it's particularly around the long-term incentives. I'm proud of the work we do on improving the ROIC. And we get strong feedback and support from shareholders around that. The -- because of the strategic shift that the business is going through, there has been introduced a component, which is around delivering more revenue that's not associated with coal. And what I like is that's balanced by the ROIC so that you're actually doing -- you've got to be senseful about it, Jakob. So that by itself, I think, is absolutely sufficient. We have -- over the last couple of years, we've instituted a very strong management -- internal management process around deliverables for every individual, which is just business as usual. And for a business development team, and this why we said multiple steps as a transaction, the reality is that's their day job to do that sort of thing. From our point of view, it's to grow -- to manage and grow the business sensibly into the future. And that's why I think we don't need any very specific metrics and targets and KPIs. I think it's much better to run it at a general strategic level. Probably puts more risk on the employee or the management employees, but it also encourages them to work harder.

There are no further questions at this time. I'll now hand back to Mr. Harding for closing remarks.

Look, thank you very much, everyone, for joining the call and sitting through it. And just to reiterate, this is a transformative transaction for Aurizon. Particularly hits 3 markers for me, which is a step change growth for the bulk revenue. It secures quality assets in new locations. And it opens up opportunities in new markets for us. Thank you very much.