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Emerging Pilbara iron ore producer Brockman Resources has pulled off a major coup by signing a sales agreement with China's largest importer of ore, Sinosteel, that could be worth more than $6 billion.
The Perth-based miner announced yesterday that it had signed a landmark memorandum of understanding with Sinosteel Australia, for the purchase of up to 50 per cent of future production from its flagship Marillana iron ore project in Western Australia's Pilbara region.
"This is a key milestone because you are now dealing with one of the most credible international companies when it comes to offtake and it shows credibility to us and our project," managing director Wayne Richards said.
"To get someone like Sinosteel willing to market 50 per cent of your ore is a major benefit."
The agreement involves the purchase of up to 10 million tonnes a year of production over an initial five-year period.
Based on Macquarie Bank's recent estimate that BHP Billiton was selling ore into Asia at about $120 a tonne for the April-June quarter, the Brockman deal would be worth about $6.5bn over five years.
Mr Richards said the company had been in talks with Sinosteel for the past 18 months.
"We have been moving the conversations and the opportunities and the potential MOU along to a point that it was now the right time based on the project status," he said.
Sinosteel Corporation, Sinosteel Australia's parent, is one of China's largest state-owned enterprises and Mr Richards said its size meant there would be additional opportunities with the Asian giant.
"There is the potential to look at other opportunities and relationships around the project," he said.
"Sinosteel has various business models and opportunities but it is not constraining us to them as we can keep the optionality open for project financing and this does not preclude us from any future financing structure arrangements for the project."
Sinosteel Australia's managing director Li Ying said the company was looking forward to finalising the offtake agreement.
"Our company is keen to co-operate and partner with Australian companies with credible projects seeking to leverage our capability to supply raw materials for China's steel industry, whether this is iron ore, manganese, chrome ore or coal," he said.
Mr Brockman said the agreement, the first signed for its offtake from Marillana, provided a strong foundation for completion of the definitive feasibility study and project development.