Fortescue Metals Group is looking to cut more costs as it scraps its contract with Downer EDI at Christmas Creek and moves to a full owner-operator model.
Fortescue did not say whether employees from Downer would move across to the company when the current mining services contract in the Pilbara ends on September 30.
Downer EDI shares fell more than seven per cent despite assurances the decision would not affect the company's 2016 financial results.
Fortescue chief executive Nev Power said production from Christmas Creek was not expected to be affected during the transition as the company looks to improve efficiency and productivity following a slump in iron ore prices.
"Adoption of an owner-operator model will further reduce Fortescue's costs through ongoing improvement of the efficiency and productivity of our Christmas Creek mining operations," Mr Power said in a statement on Tuesday.
He said the Downer team had been involved with mining at Christmas Creek since the company started operating in the Pilbara.
Fortescue has relied heavily on the use of contractors at its Pilbara mines.
Mr Power said Fortescue was focused on costs, production and safety as it looks to improve its balance sheet.
Downer EDI said it was in discussions with Fortescue about the transition and would provide an orderly handover of the Christmas Creek operation.
"The transition to an owner-operator model at Christmas Creek is not expected to have an impact on Downer's 2016 financial results," the company said in a statement.
Christmas Creek produces around 55 million tonnes of iron ore per annum.
Fortescue shares were 2.5 cents, or 0.96 per cent, lower at $2.565 while Downer shares were down 27.5 cents, or 7.35 per cent, at $3.465 at 1405 AEST.
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