BHP Billiton, JFE Steel ink iron ore deal

BHP Billiton (BHP-N) and JFE Steel have entered into a joint-venture agreement that includes the proposed sale of 16 million tonnes of iron ore per year from BHP Billiton over the next 11 years.

The deal is valued at US$3.7 billion. Both companies will be responsible for the technical development and processing of 160 million tonnes of pisolite iron ore from the Lower Channel iron deposit at the Yandi mine, 90 km north of Newman in the Pilbara region of Western Australia. Ore of this type has not previously been used in steel-making.

JFE will own 20% of a sub-lease over the Western 4 deposit; BHP retains a 68% interest; ITOCHU Minerals & Energy of Australia, 6.4%; and Mitsui Iron Ore, 5.6%. This deposit has a reserve of 109 million tonnes.

In June 2003, the Lower Channel iron deposit had proven reserves of 485 million tonnes grading 58.3% iron, as well as 156 million tonnes of 58.1% iron in the probable category. The measured resource stood at 834 million tonnes grading 57.9% iron. Both the reserve and resource contain 0.04% phosphorous.

The iron ore will be produced using existing infrastructure and facilities and is expected to start in the second half of 2005. Ore will be crushed and screened at the mine, then transported via rail to Port Hedland.

JFE Steel is the result of the recent merger of Kawasaki Steel and NKK.

This deal is the latest in a string of multi-billion-dollar agreements in which Japanese and Chinese steel-makers are locking in long-term supplies by arranging to have direct equity in mine developments.