sydney morning herald article

For those interested parties here is the SMH article.

ANDREW FORREST has publicly called his arch rival, BHP Billiton, a "hostile" company in the past, but it appears he will have to set aside the animosity in his new role as chairman of Poseidon Nickel.

Yesterday, with little fanfare, Poseidon's annual report revealed it will be forced to sell all the potential nickel production from its Windarra project in West Australia to BHP, unless it is prepared to hand over 1 per cent of the revenue to the mining giant.

The agreement dates from when WMC Resources sold the mine to Poseidon's predecessor, Niagara Mining, in 2005. However, there was no mention of the off-take agreement with BHP in May, when Poseidon signed a nickel marketing agreement with Mr Forrest's iron-ore venture, Fortescue Metals.

The marketing agreement raised eyebrows, since Fortescue does not produce any nickel, but Mr Forrest had previously cited "definite and obvious synergies between the supply chain into the steel industry" as a reason for the deal.

Poseidon (then Niagara) received three separate queries from the Australian Securities Exchange the week it revealed the marketing agreement with Fortescue, given its share price spiked by 59 per cent just before the announcement.

But last month, the Poseidon and Fortescue boards decided not to ratify the marketing agreement to allow the nickel aspirant to keep its options open.

Poseidon's new chief executive, David Singleton, said his company was in talks with BHP about "some parts" of its business. With the Windarra project being about 300 kilometres from BHP's Leinster concentrator, he said Poseidon was likely to concentrate the nickel itself and then sell the smelter-ready material to BHP or another party.

Mr Singleton said handing BHP 1 per cent of Poseidon's revenues might be "a relatively small price to pay for the flexibility" of choosing the highest-paying off-take partner.

Poseidon expects to start production late next year. Based on historic grades at Windarra, the initial plant might produce about 4000 tonnes of nickel a year. For comparison, last year Consolidated Minerals sold 4200 tonnes of nickel at an average price of about $20,000 a tonne. A 1 per cent royalty payment would have cost ConsMin $820,000.