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Fortescue shares up 7% on BC Iron deal

BC Iron will acquire an additional 25 per cent of the Nullagine iron ore joint venture with Fortescue Metals Group for $190 million.

The transaction, which becomes effective on January 1, means BC Iron will increase its interest in the Pilbara project from 50 to 75 per cent.

BC Iron said its iron ore exports would increase by 80 per cent from 2.5 million tonnes to 4.5 million tonnes as a result of the deal.

In a statement the company said capacity available on the joint venture would increase to six million tonnes.

BC Iron will fund the deal using a combination of existing cash, a new $US130 million ($A124.56 million) debt facility, and about $54-58 million in equity through an underwritten placement and share purchase plan.

"The transaction is in line with our stated priorities to increase our resource base and export tonnes and is something we have been working on with Fortescue for some time," BC Iron's managing director Mike Young said on Monday.

"It represents a low-risk opportunity for BC Iron to almost double its annual production by acquiring more of a quality asset that we already operate and know extremely well."

Fortescue chief executive Nev Power said the deal reflected the strong relationship established with BC Iron over the years.

"It forms part of our strategy to divest non-core assets," Mr Power said.

Fortescue Metals shares surged almost seven per cent ahead of an announcement on Monday.

Shares in BC Iron, which operates an iron ore joint venture in Western Australia's Pilbara region with Fortescue Metals Group, were placed in a trading halt on Monday.

At 1452 AEDT Fortescue shares were 27 cents, or 7.1 per cent, higher at $4.06.

Forty minutes before the announcement Fortescue released a statement in response to a price query by the Australian Securities Exchange.

"Other than an overnight increase in iron ore prices and rebar futures in excess of two per cent that has seen strong increases in other iron ore stocks, the company is not aware of any other explanation for the recent price change," Fortescue said.

In October, BC Iron said mining and exports were on budget.

It reported that total Nullagine joint venture exports passed five million tonnes since the first iron ore exports were made in February 2011.

BC Iron shares last traded at $2.93.

Fortescue has been considering a range of asset sales following falls in commodity prices.