Commodities Rhodes Ridge crucial for production: Rio June 19, 2008 AAP
Rio Tinto Ltd has rejected claims it had no right to one of the largest undeveloped iron ore resources in Western Australia, saying the land was critical to plans to boost production of the bulk commodity to meet booming global demand.
Rio Tinto and its joint venture partners have been accused by fiesty junior iron ore explorer Cazaly Resources Ltd of "warehousing" the assets at Rhodes Ridge in the Pilbara after letting the land lie undisturbed for 35 years.
Cazaly is challenging the rights of Rio Tinto, Hancock Prospecting Pty Ltd, Hamersley Resources Ltd and Wright Prospecting Pty Ltd over the tenements, which lie 40kms from the town of Newman and contain at least two billion tonnes of high grade iron ore.
Cazaly will battle it out with Rio Tinto at a hearing with the Department of Industry and Resources' (DoIR) Mining Warden on a date to be set.
But the junior explorer has shown its confidence in its position by forming an alliance with iron ore producer Fortescue Metals Group Ltd (FMG).
Under an agreement, Cazaly will independently battle for the rights to the project.
If successful, the tenements will be transferred to Fortescue, which will fund, develop and operate mining operations, paying royalties to Cazaly.
But analysts said Rio Tinto would fiercely fight to retain control of the project, as it had dome successfully during its dispute with Cazaly over the Shovelanna iron ore deposit, also in the Pilbara.
Cazaly lost a three year bid to take control of the deposit in April after claiming Rio Tinto had missed a deadline to renew its licence.
Cazaly co-managing director Nathan McMahon told AAP another long legal stoush with Rio Tinto was "possible, but we look forward to having FMG in our corner and doing what is right, honest and fair".
"We believe the state agreement is an empty shell and along with FMG, we want to go and develop the thing," Mr McMahon said.
FMG chief operating officer Graeme Rowley told AAP it was not appropriate for iron ore resources to lie dormant at a time of strong demand.
Mr Rowley said it would take FMG a mere three to 12 months to devise a development plan for Rhodes Ridge and mine development could be fast-tracked in the same manner FMG rolled out its flagship Pilbara project, which defied sceptics when exports were achieved in only three and a half years.
"There's only one way of doing a project - there's no sense in wasting time," Mr Rowley said.
Rio Tinto also said it would spend $US492 million ($A522.27 million) on infrastructure and studies for mine expansions, as part of a push to increase its iron ore output from the Pilbara, fanning expectations that it will vigorously defend itself against Cazaly.
"The Rhodes Ridge project is critical to our development plans in any case, particularly as we move from producing 320 million tonnes a year by 2012 to 420 million tonnes per annum from our Pilbara province," Rio Tinto iron ore chief executive Sam Walsh said.
"Certainty of land tenure in Western Australia is fundamental to this scale of investment, which is what the state agreement provides for in this case."
Rio Tinto said the tenure of the state agreement was extended to December 31 early this year.
Mr Walsh said the Rhodes Ridge joint venture partners were in "full" compliance with the terms of tenure, adding that drill rigs were currently working on site in preparation for future operations.
"The rights of occupancy are valid and the ground is not available for mining by third parties," he said.
Industry observers were surprised by the alliance between Cazaly and FMG given their acrimonious history.
FMG lost a legal stoush in 2005 when it applied for an interlocutory injunction against Cazaly regarding its application for the Shovelanna deposit.
Mr Rowley said Cazaly and FMG shared a desire to develop dormant assets while iron ore prices remained high and this overshadowed their previous differences.
The Rhodes Ridge deposit is already the subject of a separate legal fight between the children of Wright Prospecting founder Peter Wright, Angela Bennet and Michael Wright, and Hancock Prospecting's Gina Rinehart, Australia's wealthiest woman and the daughter of the late mining mogul Lang Hancock.
Rio owns 50 per cent of the deposit and the balance is in dispute.
Shares in Cazaly closed 60 per cent higher at 52 cents after hitting 70 cents in intraday trade. FMG gained 52 cents or 4.98 per cent to $10.97. Rio Tinto added $3.09 to $140.15.
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