Big Deal for BHP Billiton and JFE Steel

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

The deal is valued at about 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. Ore of this type has not previously been used in the steel-making process. The mine, 90 km north of Newman, is in the Pilbara region of Western Australia.

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 an ore reserve of 109 million tonnes.

As at June 30, of last year the Lower Channel Iron deposit had an estimated proven ore reserve of 485 million tonnes grading 58.3% iron and a probable reserve of 156 million tonnes grading 58.1% iron. The measured resource stood at 834 million tonnes grading 57.9% iron. Both the reserve and resource estimates contain 0.04% phosphorous.

Production will use existing infrastructure and facilities and is expected to commence in the second half of next year. Ore will be crushed and screened at the mine and then transported via rail to Port Hedland.

JFE Steel is the recently merged entity 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.