BCI has got access to the rail but will hand over half the project to FMG. Both companies will each throw in $10 million, and FMG will take control of the iron ore once it arrives at its own Chichester mine operation.
BCI greeted the agreement as a "company-making deal", which it is. And investors sure liked it, pushing BCI's stock up 39 per cent.
But -- and this really is pure speculation -- it seems that FMG had the junior over a barrel. As we have noted previously, FMG was earlier this year making noises wondering whether it would be able to find capacity on the line for other iron ore producers. There can be little doubt that it played hard to get on rail access.
You don't hand over half your project unless you have to, especially if it consists of 51m tonnes of direct shipping ore with very low phosphorous levels. From what we can gather, BCI took the view that the priority was getting Nullagine into production; the alternative would have been a Pyrrhic victory. A bird in the hand, as they say.
Much of the comment at the weekend about the BHP-Rio alliance in the Pilbara focused on Forrest's company being courted by the Chinese steel mills. But Forrest's position is much stronger than just his being an alternative to Rio-BHP. He is now the go-to guy in the Pilbara: he is the man the juniors will have to court if they want to get their iron ore into rail wagons.
Forrest is in a position to take a "my way or the highway" position with his railway.
And, as we know, transporting iron ore by the highway is very much the unattractive option.
UMC Price at posting:
$1.05 Sentiment: Hold Disclosure: Held
