rio - bhp jv on iron ore, page-6

from wa business news

BHP-Rio tie up to free rail for juniors
5-June-09 by AAP

Shares in BC Iron skyrocketed after the explorer said it had gained access to Fortescue Metals Group's rail and port facilities by giving up half of its Nullagine iron ore project in the Pilbara to Fortescue. BC Iron shares soared about 50 per cent to 95 cents in early trade before settling back to 86 cents by 1226 AEST, up 37.6 per cent. Fortescue shares jumped 40 cents, or 14.29 per cent, to $3.20. The companies have signed an agreement to establish a joint venture to develop Nullagine, with Fortescue providing rail haulage, port handling and ship loading facilities. BC Iron said the agreement was "company-making" and placed it "on track to become the Pilbara's next iron ore producer". BC Iron managing director Mike Young said the deal helped overcome critical infrastructure barriers to iron ore production. "FMG have really delivered on the commitment they made with the memorandum of understanding with us and had delivered on their commitment they made to the government for third party access," Mr Young told AAP. He said the deal would put pressure on BHP Billiton and Rio to open spare rail capacity to third parties. The mining giants have guarded their infrastructure fiercely, saying sharing would compromise the efficiency of their operations. But Treasurer Wayne Swan in October "declared" Rio's Hamersley and Robe railway lines and BHP Billiton's Goldsworthy railway line to be opened to third-party access. "Rio and BHP have always argued that they don't have spare capacity, which we all knew was a furphy," Mr Young said. "If you think about the synergies Rio and BHP will get from this deal, particularly shipping out of Yandicoogina (mine) ... this has to open up capacity. "You've got two railways leaving the same area. "Those synergies have to include capacity improvements on the rail infrastructure. "And what it means is there will be spare capacity for juniors." He said operating rail networks would be one of BHP and Rio's main costs, and it could - like Fortescue - get into the infrastructure provision business. "Having an infrastructure arm and providing a service to third parties can't hurt their balance book if they've got spare capacity.
"I think this is just a great outcome." Mr Young also said the sizable redundancies expected as a result of the mega-joint venture could prove a filip for the smaller end of the iron ore market.
"That iron ore expertise can move into the junior sector. "People can move away from those big companies ... and have some fun." Under BC Iron's deal with Fortescue, the parties each will contribute up to $10 million to the Nullagine project, with the remaining development costs to be funded through project finance. Mr Young said he would start a capital raising roadshow next week, and would consider a combination of debt and equity to fund the $35-$50 million project. He said the deal would "act as a template" for other aspiring iron ore miners to follow. "(Rio Tinto Iron Ore chief executive) Sam Walsh owes me a bottle of scotch because he said at the Australian Journal of Mining iron ore conference back in April that none of the juniors would get up. "I prefer bourbon."