Fortescue to sell Pilbara iron ore stake

Fortescue Metals Group has announced it will sell its stake in its equal joint venture with Pilbara junior miner BC Iron which was struck in 2009.

The move comes as Fortescue attempts to reduce debt and return focus towards stalled expansion projects amid slumping iron ore prices.

SMH reports that BC Iron will pay Fortescue $190 million for a further 25 per cent of the Nullagine iron ore project.

The company will look to raise $58 million in equity through share placement and will take on $130 million in debt to fund the deal.

The acquisition will increase BC Iron’s annual iron ore export capacity by 80 per cent to 4.5 million tonnes.

BC Iron managing director Mike Young said the deal was low risk and will be well received by shareholders.

"We know the deposit, we know the management and we like the management,'' he said.

The original agreement between BC Iron and Fortescue was finalised in August 2009, when BC Iron sold 50 per cent of its Nullagine site to Fortescue, who in return provided use of its railway and port infrastructure, aiding export to China.

At the time Young was criticised for giving in to the mining giant, he defended the deal saying it was ''better to have half of something, rather than all of nothing''.

Since 2009 many other junior miners have been left out in the cold with viable Pilbara prospects in areas which lack transport infrastructure, and now with a drop in iron ore prices they are likely to remain undeveloped for a little while to come.

It seems Young has come out on top, jokingly he updated his catchphrase: ''Now I’ve got 75 per cent of something,'' he said.

To date BC Iron Ore have exported 5 million tonnes of iron ore.

Fortescue has not said what the money will be used for.

In October Australian Mining reported that iron ore prices need to rise to relieve the ratings pressure facing some of the industry’s top producers.

Standard & Poor’s Rating Service (S&P) has predicted iron ore prices won’t climb much higher in the future and are likely to be less than $100 a tonne beyond 2015.

"For heavily indebted miners, their liquidity levels and discretion in reducing costs would be critical to their credit quality," the agency said.

The warning came after S&P lowered its rating on Fortescue Metals Group's debt to B+ from BB-.