ARH 0.00% 0.5¢ australasian resources limited

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    Australia's Fortescue signs iron ore offtake agreement with China's Baosteel
    03/26/07 08:53 am (GMT)
    SYDNEY (XFN-ASIA) - Fortescue Metal Group Ltd said it has signed a long-term offtake agreement with Shanghai Baosteel Group Corp for up to 20 mln metric tons per year of iron ore from Australia's Pilbara region.

    The emerging iron ore producer said the agreement covers a first phase quantity of up to five mln tons per year which is around 11.1 pct of the company's initially planned annual production of 45 mln tons.

    Baosteel has also committed to purchase a further 11-15 mln tons per year out of Fortescue's total 25 mln ton first expansion.

    Pricing under the agreement is based on the annual industry benchmark pricing for Pilbara premium iron ores and will reflect similar pricing for like products to Baosteel from other major international suppliers.

    The two companies have also signed a memorandum of understanding (MOU) for a joint venture to explore and develop a potentially large area of banded iron formation magnetite ore material close to the Fortescue rail corridor and between the mine site at Cloud Break and Port Hedland in Western Australia.

    Fortescue is tackling Rio Tinto Ltd and BHP Ltd's duopoly of iron ore operations in the Pilbara region by developing iron ore related rail and port infrastructure, planning to ramp up production to 45 mln metric tons a year from its two main deposits, Cloudbreak and Christmas Creek, which have a combined 1.050 bln tons of iron ore reserves.

    Current plans call for development of rail and port facilities as well as the mine itself at a total cost of 2.2 bln aud.

    Under the MOU, Baosteel will fund the exploration of the new prospective area and, if approved by a joint committee, will then fund the pre-feasibility and definitive feasibility studies.

    After these stages the equity share will be 50/50, with Fortescue gaining a small incremental share of equity and off-take if the project were to exceed production of 1.1 bln tons.

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