Fortescue Metals (FMG) has done a bit of ‘bottom fishing’ in buying out BC Iron’s 75% interest in a suspended iron ore mine for just a $1, ending a seven-year arrangement.
The sale of BC Iron’s stake in the Nullagine mine could boost Fortescue’s annual capacity by around 6 million tonnes, although the company gave no time line for resuming operations at the mine.
Nullagine was closed earlier this year because the cost of producing and shipping the ore for BC Iron exceeded selling prices. But it may still be economic for Fortescue which owns the rail line and port used to ship the ore.
Fortescue said it will assess the viability of restarting operations having regard to market conditions.
"The acquisition includes all assets and rehabilitation obligations of the NJV. Fortescue will pay BC Iron a royalty from sales of iron ore mined in the future which will be partially withheld, up-to A$7.5 million, to offset obligations, including rehabilitation, assumed by Fortescue."
Fortescue CEO, Nev Power said the decision to purchase BC Iron’s interest in the NJV reflected the outcome of constructive discussions between the parties since suspension of operations in late 2015.
“We have enjoyed a strong working relationship with BC Iron through the life of the Nullagine Joint Venture and believe this is a positive outcome for both companies. We will review operations over the coming months to determine the best path forward, taking into account all relevant factors including market demand and other potential opportunities to extract value from the assets,” Mr Power said.
BC Iron will now concentrate on exploiting another Western Australian iron ore mine called Iron Valley.
BC Iron initially sold half of the mine to Fortescue in 2009, which in return provided use of its infrastructure to enable the iron ore to be shipped and sold to markets in China.
Fortescue then sold half its interest to BC Iron for $190 million in December 2012, when iron ore was selling for around $123 a tonne, more than twice the current price.
Fortescue has previously set an iron ore production target of 165-170 million tonnes in the year ending June 30, 2017.
Fortescue shares rose 1.8% to $5.03.
