SYDNEY Fortescue Metals Group on Monday said it has bought out rival BC Iron's (BCI.AX) 75 percent interest in a mothballed iron ore mine in Australia for just one dollar, ending a seven-year partnership forged during the now-defunct mining boom.
The sale of BC Iron's stake in the Nullagine mine potentially boosts Fortescue's annual capacity by around 6 million tonnes, although the company gave no time line for resuming operations at the mine.
Nullagine was closed earlier this year because the cost of producing and shipping the ore for BC Iron exceeded selling prices, however it may still be economic for Fortescue which owns the rail line and port used to ship the ore.
"I'm pretty sure they'll just bring the tonnes back on line and put it through their system, given that they've certainly got port and rail capacity to do 180 million tonnes (a year)," said an analyst, who declined to be named as he hadn't read all the details of the deal.
For BC Iron, the sale clears the asset off its books, allowing it to concentrate on exploiting another Australian iron ore mine called Iron Valley.
BC Iron initially sold 50 percent of the mine to Fortescue in 2009, which in return provided use of its infrastructure to enable the iron ore to be shipped and sold to markets in China.
Fortescue then sold half its interest to BC Iron for A$190 million in December 2012, when iron ore was selling for around $123 a tonne, more than twice the current price. .IO62-CNI=SI
"We cannot say categorically when Nullagine might be restarted," a Fortescue spokesman said. "There are several variables, not least of which is the price of iron."
Fortescue, which is scheduled to release its September quarter production data on Oct. 20 has previously set an iron ore production target of 165-170 million tonnes in the year ending June 30, 2017.
Fortescue said it will pay BC Iron a royalty from any future sales which could be withheld up to A$7.5 million to offset rehabilitation costs and other obligations.
(Reporting by James Regan, additional reporting by Sonali Paul, editing by Richard Pullin)