Mining giant BHP Billiton is selling a 15 per cent stake in its Australian Jimblebar iron ore mine to two Japanese trading firms, Itochu Corporation and Mitsui & Co for around $1.5 billion.
BHP said yesterday Itochu’s stake will be 8 per cent at around $US800 million ($871.8 million) while Mitsui’s stake will be 7 per cent at $US700 million ($762.9 million) in the Jimblebar mining hub and resource.
The deal is looking to align Itochu and Mitsui’s interests across BHP’s Pilbara iron ore operations so assets can operate in a straightforward and flexible way.
“We are pleased to extend our successful, long standing joint venture relationship with Itochu Mitsui,” BHP Billiton Irone Ore president Jimmy Wilson said in a company statement.
He added the Jimblebar mine will have initially produce 35 million tonnes per year with possible future expansion. Once fully operational, this will rise to 220 million tonnes per year.
With the sale of the iron ore stake, BHP’s total asset sales over the past year and a half come to $6.5 billion, The Wall Street Journal said.
BHP has allotted part of the income to slash its debt as commodity prices drop on the back of sluggish global economic growth.
BHP chief Andrew Mackenzie has engaged in cost cutting measures ever since being appointed for the job. He moved to cut spending by 18 per cent in the 2014 budget, with more cuts in the offing in 2015 and 2016.
Between BHP and Rio Tinto, a combined $10 billion of cost savings will be slashed from operating expenses.
The two Japanese companies already possess 15 per cent of BHP’s mine, railway and port infrastructure in the region between them.
They will acquire a yearly output of over five million tons through this deal including shares of potential production increases in the future.
This makes up approximately 4 per cent of Japanese demand, Japanese news agency Nikkei said.
BHP and the two Japanese companies own three additional iron ore mines in the region that supply the Japanese firms with 27.9 million tons in yearly production volume.
This is chiefly exported to China, but the companies are looking at expansion into Southeast Asia, where a number of blast furnaces are in the offing.
China’s spot price for delivered iron ore has fallen nearly 40 per cent from its February 2011 high following the 20008-09 financial crisis. It is now trading at $120.6 a ton
Even as iron ore prices drop, China and the South East Asian region is expected to lead the way for demand in the steelmaking raw ingredient.
Steel production is growing to 2.3 billion tons by 2025 compared to 1.5 billion tons last year.