02/04/2015 - 10:57

BC Iron ends Watpac contract early

02/04/2015 - 10:57

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BC Iron has terminated a mining services contract with Watpac Civil & Mining three months early as it seeks to cut costs at its Nullagine joint venture operation in response to the plunging iron ore price.

BC Iron's Nullagine operation.

BC Iron has terminated a mining services contract with Watpac Civil & Mining three months early as it seeks to cut costs at its Nullagine joint venture operation in response to the plunging iron ore price.

BC Iron said the contract, which was awarded to Watpac in 2010, will now end in July, with the company to continue providing mining, crushing and screening services at Nullagine until then.

“The NJV is obligated to make a one-off contract termination payment to Watpac and purchase certain second-hand equipment including a Vermeer 1655 surface miner, a 2Mtpa mobile crushing and screening plant and four Haulmax trucks,” BC Iron said.

BC Iron said it wanted to carry out similar cost-saving measures of $2 to $3 per wet metric tonnes it had recently achieved at its Warrigal hub to other areas of Nullagine.

“Ownership of the surface miners, in particular, will provide BC Iron with greater flexibility in structuring any new contracts and reduce inbuilt capital-related operating charges at site,” it said.

“The contract termination also removes a significant fixed-cost element from Nullagine’s cost base.”

The company recently announced it had awarded Viento Group a $40 million contract to provide crushing and screening at the Warrigal hub, as part of its cost savings initiative.

BC Iron reaffirmed its expected share of capital expenditure for Nullagine to remain in the previously announced guidance range of $13 million to $16 million.

Managing director Morgan Ball said while Watpac continued to operate in the next three months, the company would consider its options as to who would be operating the plant after the mining services company's departure.

He said ownership the surface miner and equipment would allow BC Iron to choose from a larger pool of mining services companies to offer a new contract.

"We're giving ourselves time to think about options as far as other contracts go, and we have a far bigger pool of contractors to discuss those options with," Mr Ball said.

“Watpac was the inaugural mining, crushing and screening contractor at Nullagine and has supported the operation from start-up through to steady-state operations as an important partner to BC Iron.” 

BC Iron announced yesterday it would be receiving a $12 million royalty relief from the state government.

Shares in BC were down 5 per cent to 34.2 cents per share at 10:45am.

Watpac lost 1.9 per cent to 76.5 cents per share.

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