THE BOURSE WHISPERER: Australian iron ore producer, BC Iron (ASX: BCI) has signed agreements with its joint venture partner, Fortescue Metals Group (ASX: FMG) and subsidiaries, to acquire an additional 25 per cent interest in the Nullagine iron ore Joint Venture (NJV), effective 1 January 2013.
As part of the transaction, BC Iron, its subsidiary BC Iron Nullagine and Fortescue have executed binding documentation to give effect to the following:
– BC Iron will increase its participating interest in the NJV from 50 per cent to 75 per cent;
– The capacity available to the NJV on Fortescue’s rail and port infrastructure shall be formally increased to 6 million tonnes per annum (Mtpa) for the life of the NJV;
– BC Iron’s share of annual production will increase by 80 per cent from 2.5 Mtpa to 4.5 Mtpa;
– BC Iron shall make a once-off prepayment of rail haulage and port charges for 3.5 million tonnes (wet) of its share of production from the NJV (Rail and Port Prepayment);
– BC Iron’s obligation to deliver product into its existing offtake agreement will remain unchanged; and
– Fortescue and BC Iron will continue to explore other opportunities in the East Pilbara Region.
“This transaction reinforces the strong on-going relationship we have with Fortescue and we look forward to broadening that relationship going forward,” BC Iron managing director Mike Young said in the company’s announcement to the Australian Securities Exchange.
“The transaction is in line with our stated priorities to increase our resource base and export tonnes, and is something we have been working on with Fortescue for some time.
“It represents a low risk opportunity for BC Iron to almost double its annual production by acquiring more of a quality asset that we already operate and know extremely well.”
The total consideration payable by BC Iron to Fortescue (including the Rail and Port Prepayment) has been agreed at $190 million, plus a price participation arrangement payable to Fortescue in certain iron price conditions.
The total consideration, plus associated transaction costs, will be funded using a combination of existing cash, a new US$130 million debt facility, and approximately $54 to $58 million in equity through an underwritten placement and Share Purchase Plan.