rio comments, page-16

Hi UIO,

I'm a bit confused with what conditions may be imposed on junior iron ore companies by FMG. I found this article from last year that talks about FMG letting juniors use its railway and port to move their ore because they see econonmic benefit in receiving payment for the trains etc. No doubt they see themselves out of making some $ out their unused capacity.

I'm a bit miffed about the fee charged perhaps being contingent on the ore quality, or at least that's the way I've interpreted it. I figure it costs X dollars to move the ore irrespective of its quality, but it's up to the junior miner to determine if it's financially viable based on the fee sought by FMG. The article doesn't indicate conditions they imposed on Atlas, but it seems Atlas is not selling any ore to FMG, it just using the infrastructure to get their ore to market. Maybe things have changed.

It's also interesting that in the article FMG specifically mention Brockman (nee Yilgarn Mining) as being in discussions about rail access - which flies in the face of the assertion made by one of the journalists last week about Brockman not having yet spoken to FMG.

As you say, much depends on the screening of the detrital and getting it to a saleable grade. However, the drilling they're doing now they anticipate proving up 'significant CID tonnage at Abalone', which hopefully will double the amount of CID that is of good grade. They did have a few drill holes which found 7-8 mtrs of CID and that had ended in mineralisation. Hopefully they'll have enough good quality CID to mix with the detrital to make a saleable product that can be transported.

By the way, you seem pretty knowledgeable on iron ore. Do you know the degree of reliability magnetic surveys give for identifying buried ore bodies?

The reason I ask is because there are 8 magnetic gravity zones that the company has targeted in Marillana. MG1 was the Northwest sector and has 47MT of CID. MG2 falls within Abalone and 2 drill holes 800metres apart both ended in the CID mineralisation. The MG2 zone seems larger than the MG1 zone, so perhaps has just as much CID.

There are 5 MG zones in the sth east sector that they intend drilling this year - and they look much larger than the MG1 zone so appear quite prospective. I just don't know how accurate/reliable these magnetic surveys are.

Anyway, the article from last year about FMG's willingness to share its railway starts below.

Fortescue shows how by sharing berth
Jamie Freed
June 13, 2007

THE first iron ore shipped from Fortescue Metals' new berth at Port Hedland might be produced by another company.

In an apparent demonstration of its commitment to open-access infrastructure in the middle of its long-running battle to gain access to BHP Billiton's railway line, the Andrew Forrest company yesterday signed a memorandum of understanding with tiddler Atlas Iron.

The deal would allow Atlas to start shipping 1 million tonnes a year from Fortescue's port from March, subject to state environmental approvals.

Fortescue plans to ship its first iron ore from its $3.2 billion Pilbara iron ore project in May, cyclones having delayed construction of its railway line.

Fortescue is fighting in the Australian Competition Tribunal for approval to run its own trains on BHP's railway line to help develop a secondary project but other junior miners in the region are merely wanting BHP or Fortescue to carry the ore on the existing infrastructure at a commercial price.

BHP is believed to be discussing haulage arrangements with a number of companies, including Iron Ore Holdings.

Rio Tinto said it had not been approached to haul outside ore or provide access to its railway.

Small producers did not want to buy trains and rolling stock, Fortescue government relations head Julian Tapp said.

"This is just going to be a profit stream for us. We're going to make money helping other people ship their iron ore."

He said several other iron ore explorers, including BC Iron and Yilgarn Mining, had also expressed interest in using Fortescue's infrastructure but most would find BHP's railway more convenient geographically.

Fortescue's agreement with Atlas allows the companies 60 days to negotiate commercial terms for the port handling and ship loading services but it is not legally binding.

Atlas plans to haul ore from its Pardoo hematite project 75 kilometres east of Port Hedland using road trains and will use Fortescue's port only until a new public facility is completed in 2009.

Atlas managing director David Flanagan said hauling the ore on BHP Billiton's railway line would be more cost efficient and better for the environment but the parties had not come to an agreement after two and a half years of discussions.

"In the event BHP and Atlas could come to a workable agreement we would grab it with both hands," he said.

The deal with Fortescue would also allow Atlas to use its port facilities for a potential magnetite project and its railway and port for a second hematite project, neither of which now has a resource.

Mr Flanagan said the company would release a 800 million tonne to 1 billion tonne magnetite resource next month and the hematite resource would be released in 12 to 18 months.

Atlas shares yesterday closed 18.5c higher at a record $1.085, having nearly doubled in the past month. Fortescue shares closed 21c lower at $35.79.