The Australian reported that the plunging iron ore price could force a new wave of consolidation among the Pilbara based operators, as pressure mounts on Mr Andrew Forrest to consider a third force tie up between his Fortescue Metals and Ms Gina Rinehart's adjacent Roy Hill deposit.

While unthinkable only a few weeks ago, a possible Fortescue Roy Hill merger or partnership is seen as a solution to shrinking margins, reducing the need to build railway and port infrastructure.

The Roy Hill project, estimated to cost AUD 9.5 billion for a 55 tonnes a year facility, requires a 340 kilometers long rail line to be built, alongside Fortescue's existing line to its Cloudbreak mine.

Mr Mike Young CEO of BC Iron said that "The deposits are contiguous, certainly it would make sense. Because the deposits are the same ore body and there's a railway there may be that's something they should be talking about or contemplating."

Mr Young's comments are significant as he is a leading figure in the Perth based mining community and vice president of the Association of Mining and Exploration Companies.

BC Iron itself is in a 50:50 JV with Fortescue and uses the latter's infrastructure to deliver ore from BC's flagship Nullagine mine.

BBY analyst Mr Mike Harrowell said, while the sector was not yet ripe for full blooded consolidation, a Fortescue Roy Hill tie up stood out as an obvious deal. He said that "The major item on the plate in the current environment is what is Fortescue going to do. They are the ones with all the debt and all the assets, so the natural outcome would be for a spill of assets out of Fortescue."

Mr Harrowell said Roy Hill's proposed AUD 1.5 billion rail line would run more or less alongside Fortescue's, so it made sense for the parties to talk. He said that "I'm sure they have thought long and hard about this. Fortescue founder and major shareholder Mr Andrew Forrest and Ms Gina Rinehart both know that you only get one chance in a blue moon to deal."

By agreement with the West Australian government, Fortescue's rail infrastructure is open to third parties subject to negotiation and capacity.

The speculation comes amid last week's departure of Fortescue external head, Ms Julian Tapp, as part of the company's AUD 300 million cost purge. Given Mr Tapp's crucial role in the miner's eight year quest to gain access to BHP's and Rio's rail lines, his exit may suggest a change of tack on the issue.

Source - The Australian

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