Pilbara miner BC Iron is making an early exit from a five year mining contract with Watpac as it slashes costs in response to a plunging iron ore price.
The company also confirmed its current all-in cash cost per tonne of iron ore is between $53 and $57, as the traded price in China dropped below $US50 per tonne to a ten year low.
The junior iron ore miner is terminating Watpac's mining, crushing and screening contract at BC Iron's Nullagine joint venture three months earlier than scheduled, but has not revealed whether there will be any job losses.
Watpac's work will now finish in July.
The early contract termination and purchase of second hand equipment is part of BC Iron's strategy to achieve cost savings of between $2 and $3 per wet metric tonne across the joint venture, part-owned with Fortescue Metals.
Chief executive Morgan Ball said the joint venture would have to make a one-off contract termination payment to Watpac, but added ownership of the surface miners would provide BC Iron with greater flexibility when structuring new contracts, and reduce operating charges.
"The benefit of this strategy is expected to be seen in full year 2016 cost guidance," he said.
"The contract termination also removes a significant fixed cost element from the Nullagine joint venture cost base."
Watpac was the inaugural mining, crushing and screening contractor at Nullagine from start-up four and a half years ago.
Contractors Watpac and Toll currently operate at Nullagine.
Over the past week the iron ore price has fallen to around $US49 per tonne and Deutsche Bank predicts the commodity will slide to $US40.
The price plunge of Australia's most valuable export is due to a combination of the world's largest miners, such as Rio Tinto, BHP Billiton and Fortescue, flooding the market with supply as demand from China's steel producers falling.
BC Iron shares dropped 1.5 cents, or 4.2 per cent, to 34.5 cents, and have fallen eight per cent this week.
Share
