BC Iron inks deal with Fortescue to start mining in Western Australia
ASX-listed BC Iron has signed an agreement with iron-ore producer Fortescue Metals Group (FMG), which would put BC Iron on track to become the Pilbara’s region’s next iron-ore producer.Upon the completion of a feasibility study, the companies would establish a joint venture (JV) to develop BC Iron’s Nullagine iron-ore project in Western Australia. FMG could earn up to 50% in the project by meeting its JV obligations.Under the terms of the Nullagine JV, BC Iron and Chichester Metals, a wholly owned subsidiary of FMG, would each contribute equity up to A$10-million to the project, with the remaining development costs expected to be funded through project finance. BC Iron would manage the Nullagine JV, including responsibility for all operations, road haulage, marketing and ore sales, while TPI would manage all rail and port operations, taking product from the project stockpile at FMG’s Chichester operation to ships in Port Hedland.The agreement ensures that, subject to completion of the feasibility study and securing all relevant statutory approvals, BC Iron could start production at Nullagine in early 2010.The feasibility study is due to be completed at the end of this month and is based on an initial yearly production rate of 1,5-million tons. Output was expected to rise to a minimum of three-million tons a year once the dedicated heavy haul road between the Nullagine mine site and the Chichester Operations was built and commissioned. When TPI’s rail is extended to Christmas Creek and port capacity is increased, Nullagine’s production could be increased to five-million tons a year.“The JV and the rail haulage and port services agreements overcome the critical infrastructure barriers to iron-ore production,” BC Iron MD Mike Young said. “This is a great outcome for both BC Iron and FMG, a fantastic result for our shareholders and an important step for the continued development of the junior iron-ore sector in the Pilbara.”The Nullagine project’s resource comprises a high-quality, direct shipping ore of 51-million tons, grading 57% iron with ultra-low phosphorous.Preliminary results from the feasibility study suggest Nullagine would be a robust project, with forecast average operating costs over the life-of-mine of between A$40/t to A$45/t free-on-board. Capital development costs would be between A$35-million and A$50-million, depending on timing of production. The payback of capital was expected to take less than two years from the start of production.