Rio to keep third parties off tracks

24/07/2008 - 10:48

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Rio Tinto Ltd has signed a landmark agreement to purchase iron ore from a Perth-based junior's Pilbara mine, paving the way for small companies to develop costly projects while allowing the industry majors to keep control of their rail infrastructure.

Rio Tinto Ltd has signed a landmark agreement to purchase iron ore from a Perth-based junior's Pilbara mine, paving the way for small companies to develop costly projects while allowing the industry majors to keep control of their rail infrastructure.

Rio today agreed to purchase up to 1.5 million tonnes per annum of the steelmaking product from Iron Ore Holdings Ltd's Phil's Creek mine, 90 kilometres from Newman.

The mine-gate agreement now allows IOH, which is backed by Kerry Stokes, to develop the $70 million project without incurring huge capital costs related to rail and port infrastructure.

"It demonstrates our preferred alternative to the growing demands from government and industry for access to our rail infrastructure," Rio Tinto iron ore chief executive Sam Walsh said in a statement.

Junior iron ore companies led by Fortescue Metals Group Ltd are seeking access to Rio Tinto and BHP Billiton Ltd's railways in the Pilbara to export the steel-making commodity amid rising prices for the commodity.

IOH shares gained 4.5 cents, or 7.89 per cent to 61.5 cents by 1534 AEST, while Rio Tinto dropped $4.11 to $115.99.

The National Competition Council last month called for public comment on its draft recommendation that three separate railways owned by the majors be opened for access by third parties to improve competition in the haulage market for iron ore.

The NCC will make its final recommendations to Federal Treasurer Wayne Swan following the public submission period.

Under the agreement with Rio Tinto, IOH will deliver the ore to the Yandicoogina stockyard where Rio Tinto would take ownership and transport it for sale to customers.

IOH's Phils Creek project is still in the feasibility stage but it is envisaged the operation would produce about 1.5 million tonnes of iron ore per year.

"This commercial agreement represents an excellent opportunity for Rio Tinto to gain access to extra tonnage and, importantly, in a way that does not jeopardise the efficiency of our fully integrated production system," Mr Walsh said.

Below are both companies' announcements:

IRON ORE HOLDINGS

Iron Ore Holdings (IOH) is pleased to advise that it has entered into an arrangement with Rio Tinto for an annual mine gate sale of up to 1.5 million tonnes of iron ore from a new mine to be developed at Phil's Creek, north west of Newman.

The Phil's Creek deposit comprises 8.3 million tonnes of Indicated Mineral Resources grading 58.1%Fe, reported in accordance with the 2004 JORC code.

The pisolite ore deposit is situated only five kilometres from Rio Tinto's Yandicoogina mine.

IOH will complete a definitive engineering study by February 2009. Mining is anticipated to commence at Phil's Creek by the second half of 2010 subject to negotiation of a formal ore sales agreement with Rio Tinto.

Managing Director of IOH Matt Rimes said: "This is a great outcome for IOH, firstly to resolve how we can competitively begin to mine this small deposit and secondly to partner with industry leader Rio Tinto. The commercial arrangements substantiate our estimates of the net present value of the Phil's Creek project at approximately $70million."

Following the confirmation of the feasibility of developing the Phil's Creek deposit, the mine would be owned and operated by IOH, and Rio Tinto would purchase the supplied ore and blend it for sale to its customers. IOH would deliver the ore to Yandicoogina stockyard where Rio Tinto would assume ownership and accommodate it on its integrated rail and port system.

Mr Rimes said, "IOH is positioned to deliver ore to Rio Tinto on favourable commercial terms and Rio Tinto has discretion about when it is best placed to load and carry that ore on its network. It is a solution that favours both parties and does not require regulation or an arbitrated outcome."

The Chairman of IOH, Mal Randall said "I believe that this commercially-based outcome makes good sense for IOH and for Rio Tinto. The arrangement with Rio Tinto gives IOH, as a junior iron ore company, the ability to sell its ore without the need to incur substantial capital costs for related rail and port infrastructure."

"This arrangement also represents a significant milestone for IOH and its shareholders in this transitional move from explorer to miner," he said.

The proposal requires approval by the Western Australian Government.

RIO TINTO

Rio Tinto, through its Hamersley Iron subsidiary, and Iron Ore Holdings Limited (ASX: IOH) agreed today on commercial terms for an innovative mine-gate sales arrangement. Under the arrangement, Rio Tinto would purchase iron ore from a new IOH mine at Phil's Creek, 90 kilometres from Newman.

Once the feasibility of developing the Phil's Creek deposit is proven, the mine would be owned and operated by IOH, and Rio Tinto would purchase the supplied iron ore and transport it for sale to its customers. IOH would deliver the ore to the Yandicoogina stockyard, where Rio Tinto would assume ownership. The mine would produce an estimated one to 1.5 million tonnes a year.

Rio Tinto Iron Ore chief executive Sam Walsh said the agreement was an innovative solution that suited both parties.

"This commercial agreement represents an excellent opportunity for Rio Tinto to gain access to extra tonnage, and importantly, in a way that does not jeopardise the efficiency of our fully integrated production system."

"It also enables IOH to develop a small resource that would face large capital costs on a stand-alone basis and most likely remain undeveloped," he said.

Mr Walsh said: "The output from this proposed mine is less than one per cent of our total Pilbara production. With our exponential growth from 220 to 320 million tonnes per year and beyond, and infrastructure expansions possibly preceding mine supply, we can stockpile the ore to capitalise on rail and shipping opportunities as they arise."

"Importantly, it demonstrates our preferred alternative to the growing demands from Government and industry for access to our rail infrastructure. The agreement is commercially-based and balances the risks for both parties," Mr Walsh said.

The Phil's Creek deposit comprises 8.3 million tonnes of Indicated Mineral Resources grading 58.1%Fe, which IOH has reported in accordance with the 2004 JORC code.1

The deposit is pisolite ore situated only five kilometres from Rio Tinto's Yandicoogina mine, the largest iron ore mine in Australia.

The proposal requires the approval of the Western Australian Government.

 

 

 

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