Trading house Tennant Metals has challenged the termination of an off-take agreement with BC Iron over the Nullagine iron ore project, which is being developed in joint venture with Fortescue Metals Group.
BC announced in February 2009 that it had struck an offtake agreement with Tennant, for 25 per cent of its future iron ore production from Nullagine.
At the time of the agreement, the planned output was 1.5 million tonnes per year but is now 3.0 million tonnes per year.
Five months later, BC announced a joint venture agreement with FMG for the development of Nullagine.
It has subsequently announced a US$50 million funding and off-take agreement with Hong Kong based trading company Heng Hou Industries. The off-take agreement is for 20 million tonnes of iron ore to be supplied over 8.5 years.
BC chairman Tony Kiernan told WA Business News the Tennant Metals agreement was terminated "some months ago".
"We had the right to terminate it if it was in our best commercial interests," he said.
Mr Kiernan said Tennant disagreed with that decision.
Tennant has referred the matter to arbitration, in line with a process laid out in the February agreement.
BC said it will strongly defend any action Tennant Metals may take in this regard.
Sydney-based Tennant was unable to comment on the BC statement or the arbitration process.
BC announced last month that results from its trial mining test pit had exceeded expectations and that FMG had formally confirmed its commitment to move ahead with development activities.
The Nullagine project will share rail and port infrastructure with FMG's existing Pilbara operations.