IN A landmark deal that could unlock millions of tonnes of stranded iron ore in Western Australia's Pilbara, resources giant Rio Tinto has signed a "mine-gate" sales agreement with junior miner Iron Ore Holdings.
The agreement - understood to be the first of its kind in the Pilbara - also gives Rio a low-cost way of ramping up iron ore output to meet China's hunger for the raw material.
Rio and Iron Ore Holdings announced yesterday in separate statements that Rio would buy raw material from Iron Ore Holdings' 1.5 million-tonne-a-year mine at Phil's Creek, about 90km from the township of Newman.
Under the mine-gate deal, Iron Ore Holdings will deliver to Rio's Yandicoogina stockyard, the mining giant will assume ownership, and then transport it for sale to its customers.
DJ Carmichael analyst James Wilson said Rio's agreement with Iron Ore Holdings could be the first of many it strikes in the Pilbara.
And he said Rio's arch-rival and would-be acquirer BHP Billiton could follow suit with similar deals.
"Rio has done this deal with a smaller player, and it's only 1.5 million tonnes a year," he said.
"But if you do 20 of those you've got 30 million tonnes' additional capacity without even blinking.
"They just deliver it to you and they don't even get the best price in the world - they get a discounted price because they're not shipping."
Iron ore juniors in the Pilbara include Atlas Iron, United Minerals, Aurox Resources, BC Iron, Ausquest, Ferraus Resources, Cazaly Resources, Aquila Resources, Cape Lambert Iron Ore, Australasian Resources and Polaris Metals.
Together these emerging producers are sitting on hundreds of millions of tonnes of iron ore. Separately, however, the projects are too small too justify a big investment in railways to take the raw materials to the coast for shipment.
Fortescue Metals Group is leading a long-running political and legal battle to open up BHP and Rio's respective rail networks in the region, but the proposal has met staunch resistance by the region's two dominant players.
However, Rio's deal with Iron Ore Holdings could give the juniors an alternative way of unlocking their stranded iron ore reserves that is palatable to both mining giants.
A Rio spokesperson would not rule out the possibility of further deals but said they would be judged on their merits.
Rio is working on plans to grow its annual iron ore production in the Pilbara to 320 million tonnes by 2012 and to 600 million tonnes in the years beyond.
A BHP spokesperson refused to comment on whether it was planning to tie up similar agreements in the Pilbara.
However, the world's largest miner has flagged plans to move its WA iron ore capacity to 300 million tonnes each year by 2015. --------------------------------------------------------
Just thought i would post as it would be great if BHP and FRS could come to sort of deal.
FRS Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
