Oct. 27 (Bloomberg) -- BHP Billiton Ltd. and Rio Tinto Group must share their iron-ore railroads in Australia with Fortescue Metals Group Ltd., potentially cutting sales from the world's second- and third-largest producers.

Australian Treasurer Wayne Swan declared the railroads open for 20 years in a letter posted on the National Competition Council Web site and verified by Australia's National Competition Council. The council sent its final recommendation to Swan on Aug. 29, without disclosing its decision.

The ruling may cost Australia A$30 billion ($18 billion) and will risk further investment in iron ore production, Rio Tinto said today. BHP said the decision may cause potential delays or disruptions to operations of its railroads, which are expected to carry 137 million metric tons of iron ore this fiscal year.

``Given those railways were fully constructed and fully paid for by the current users, it does seem to me inequitable that other parties can come in,'' Peter Rudd, a research analyst at Carroll, Pike & Piercy Pty, said by phone today. ``BHP and Rio will be resisting it to their fullest capabilities.''

BHP rose 0.9 percent to A$24.60 and Rio also added 0.9 percent to A$64.65 at the close of trade in Sydney, before Swan's decision was announced. Fortescue fell 1.8 percent to A$2.80.

Fortescue wants to use the networks to access deposits of iron ore stranded in remote parts of the Pilbara, potentially increasing shipments of ore to meet demand from China. Both BHP and Rio said the matter could be taken to the Australian Competition Tribunal for review, a move Rio described as likely.

Rio Worse Off

The decision will affect Rio more than BHP, Rudd said, as London-based Rio generates 30 percent of its profit from iron ore and BHP, the world's biggest mining company, earns about 16 percent. Melbourne-based BHP is offering $62 billion in stock to buy Rio Tinto.

Allowing third-party access will impede efficiency and ``reduce the tonnage that can be pushed through,'' Sam Walsh, the chief executive officer of Rio Tinto's iron ore unit, said in an e-mailed statement.

Cost concerns ``are outweighed by a range of benefits, including increased competition, avoiding inefficient duplication of facilities and reducing further adverse impacts on native title rights and the environment,'' Swan said in a statement. Fortescue must still negotiate terms and conditions for access, he said.

``The efficient delivery of iron ore to our customers should not be compromised through allowing other companies to put their rail cars on our tracks, creating potential delays or disruption to our operations,'' Ian Ashby, BHP's president of iron ore, said today in a statement.

The company had been negotiating with the Western Australian government terms by which BHP would be paid by rivals to carry their ore on BHP trains, it said today.

Fortescue built its own A$2.8 billion rail and port operation for its Cloudbreak mine in May this year, becoming Australia's third-biggest producer of the steelmaking ingredient. It wants to use BHP's Mt. Newman line to access the undeveloped Mindy Mindy deposit, a venture with Palmary Enterprises Ltd., controlled by Ukrainian billionaire Gennadiy Bogolyubov.

``This is a great decision for Fortescue, for junior miners and for Australia's export revenue and the economic and social dividends it provides,'' Graeme Rowley, the executive director of operations for Perth-based Fortescue, said today in a statement. ``We are now looking forward to negotiating commercial access terms with Rio Tinto and BHP Billiton rather than wasting more money on costly legal appeals.''

Fortescue's Mindy Mindy could produce 5 million tons of ore a year, though a detailed study wasn't done before the treasurer announced his decision.

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net

Last Updated: October 27, 2008 04:26 EDT