Australia rail group Aurizon warns ruling could hit coal investment

SYDNEY, Sept 30 (Reuters) - Australian rail haulage group Aurizon on Tuesday warned a smaller-than-expected government cap on revenue of A$4.02 billion ($3.50 billion) it can generate from its key Queensland state operations could hurt future investment in the sector.

The Queensland Competition Authority (QCA) has published a draft decision outlining Aurizon's terms and conditions for negotiating coal train services in the central Queensland coal region.

The draft is seen as a victory for coal miners seeking to better control mining and shipping costs in the face of a prolonged downturn in the sector.

Aurizon shares slid 1 percent to A$4.45 against a slightly firmer overall market.

On Monday, Japan's Sumitomo Corp and its partner Vale SA said they would shut down a mine in Queensland by the end of January because of a poor market outlook.

Aurizon, which operates the majority of Queensland's coal railways, submitted an amended submission on August 11 capped at $4.75 billion that outlines the prices it wants to charge miners to use its lines.

The company said it will provide further information and make a case for "robust changes" in the final determination.

"Aurizon Network is concerned about the negative signal this draft decision will send for future investment in the Central Queensland Coal Network, together with the impact it could have on the level of maintenance activities required to provide a safe, reliable and high-capacity network for customers," it said.

Australia's coal miners have become particularly sensitive to costs, with some estimates indicating up to a third of all operations are running at a loss.

Queensland state, the world's biggest source for exported metallurgical coal used to make steel has faced a wave of job losses and mine closures.

Prices of both metallurgical and thermal coal, used in power generation, are down dramatically from peaks in 2008. In 2014 alone, prices have dropped roughly 15 percent.

BHP Billiton (NYSE: BBL - news) and Mitsubishi last week said they were cutting about 700 jobs at coal mines they operate in the Bowen Basin, citing tough market conditions.

Australia & New Zealand Bank forecasts an average price of $125 a tonne for coking coal this year versus $159 a tonne last year. It forecasts an average thermal coal price this year of $74 a tonne, against $84 last year.

The main driver of oversupply has been China, where coal production has climbed 3.3 billion tonnes, or 400 percent, since 2000, according to the bank.

(1 US dollar = 1.1481 Australian dollar) (Reporting by James Regan; Editing by Biju Dwarakanath)