BC Iron will almost double its iron ore output after increasing its stake in the Nullagine joint venture in a $190 million deal.
BC Iron, which operates an iron ore joint venture in Western Australia’s Pilbara region with Fortescue Metals Group, has boosted its interest in the project from 50 per cent to 75 per cent, despite recent iron ore price volatility.
After a year of negotiations between the two companies, Fortescue plans to use the funds to restart the Kings mine at Solomon.
BC Iron predicts its iron ore exports will increase by 80 per cent from 2.5 million tonnes to 4.5 million tonnes as capacity increases from five to six million tonnes.
Managing director Mike Young said the Nullagine infrastructure could probably handle another million tonnes of capacity.
“Come the end of the wet season we’ll be at the full run rate of six million and there could be some spare capacity but we’ll assume we’re operating at six,” Mr Young told AAP.
But he said iron ore price volatility during 2012 had not changed the company’s decision to push ahead with the deal and expand its camp and trucking facilities.
“We did a lot of stress testing,” Mr Young said.
The company will fund the deal with Fortescue using a combination of existing cash, a new $US130 million ($A124.56 million) debt facility, and about $54-58 million in equity through an underwritten placement and share purchase plan.
“It leverages it up a bit but not in a way that’s any way dangerous or risky,” Mr Young said.
He predicts iron ore will trade between $110 and $130 per tonne in 2013, but conceded smaller miners would struggle to compete with the big players if large price falls occurred.
“The price has got to come off a long way before we’re under water,” he said.
Shares in BC Iron have been placed in a trading halt until Wednesday.
Fortescue chief executive Nev Power said the deal formed part of the company’s strategy to divest non-core assets.
“The funds provide additional liquidity as we consider a restart of the Kings mine at Solomon,” Mr Power said.
Fortescue has been considering a range of asset sales following falls in commodity prices.
Shares in Fortescue Metals closed 26 cents, or 6.9 per cent, higher at $4.05 after surging ahead of the announcement on Monday.
Forty minutes before the announcement Fortescue released a statement in response to a price query by the Australian Securities Exchange.
“Other than an overnight increase in iron ore prices and rebar futures in excess of two per cent that has seen strong increases in other iron ore stocks, the company is not aware of any other explanation for the recent price change,” Fortescue said.
BC Iron shares last traded at $2.93.
