BC owns a 75% stake in the Nullagine iron ore mine, with FMG holding the balance and providing access to infrastructure.

The new tariff mechanism, which will be trialled for three months from November 1, will vary the amount paid by the Nullagine JV to FMG subsidiary The Pilbara Infrastructure (TPI) depending on iron ore prices.

The tariff will move by around US50c per wet metric tonne for each $1 per dry metric tonne change in the US dollar 62% iron cost and freight price below $56/dmt.

That is, the tariff will decrease if the price is below $56/dmt, and increase if the price recovers.

The iron ore price is currently sitting at a three-month low of $51.04/t.

The revised tariff mechanism has a floor price of $40/dmt and a cap price of $70/dmt.

Based on current spot prices, BC expects to save around $A2.3 million over the trial period.

If, as expected by many analysts, the iron ore price drops to $US50/t or lower, BC will save more than $A3.8 million.

BC managing director Morgan Ball said the trial reflected the cooperative approach between the partners in the current iron ore price environment.

“The variation to rail and port charges will have the effect of lowering the iron ore price at which BC Iron can continue to generate positive cashflows from the Nullagine JV,” he said.

“Although the tariff does increase at higher iron ore prices, BC Iron still retains some exposure to this upside.”

FMG CEO Nev Power said the innovative new tariff mechanism would serve both parties well.

“Today’s announcement is a further example of Fortescue’s willingness to provide access to its world-class infrastructure on commercial terms, strengthening our collaborative approach to working with our partners in the Pilbara region,” he said.

The Nullagine JV shipped 1.4 million wet metric tonnes of Bonnie Fines during the September quarter at C1 cash costs of $A44/wmt free on board and all-in costs of $52/wmt.

BC’s average realised cost and freight price for the quarter was $US47 per dry metric tonne, or $A65/dmt, before prior period and hedging adjustments of $3/dmt.

The mine generated positive operating cashflow for BC of $7.7 million after corporate costs, but excluding the $2 million royalty rebate received from the Western Australian government.

 

Shares in BC rose 1.7% to 29.5c, while FMG shares dropped 5.5% to $2.42.