BHP Land Deal with Nyiyaparli People to Boost Output of Iron Ore to 350M Tonnes by 2020

BHP Billiton (ASX: BHP) inked a native land agreement in the Pilbara with the Nyiyaparli people. The signing would lead to expansion of the mining giant's iron ore operations and boost its output to 350 million tonnes by 2020 from the current 120 million tonnes.

It is the second agreement for the Nyiyaparli people which signed in 2011 a similar agreement with another mining giant, Rio Tinto (ASX: RIO). The BHP deal will provide the natives about $2 billion over 40 years in exchange for 70,000 square kilometers of their lines which would result in the opening of 40 new iron ore mines. BHP did not disclose the actual amount of the deal but industry observers believe it is within the same range as the deal signed by Rio Tinto.

The deal ends more than four years of negotiations between BHP and the Nyiyaparlis who provided their consent to all present and future BHP operations on their land around Newman and eastern Pilbara. The benefits to the natives include access to financial advisers and the establishment of a direct benefits trust with at least 50 per cent of money set aside for wealth-generating measures.

Simon Hawkins, chief executive of Yamatji Maripa Aboriginal Cooperation who led the talks with BHP on behalf of the natives, said the deal would help the Nyiyaparli people to leave the welfare cycle because of their access to real capital in the Pilbara.

A charitable trust fund would also be set up that would benefit the wider Pilbara Aboriginal community in the form of investments in education, training, health and employment.

The BHP agreement has minimum and maximum stream of benefits through a production-based payment system that guarantees long-term income stream, while the earlier deal with Rio has fixed-revenue share from iron ore sales.

It is the first major native title deal for BHP in the Pilbara region.

Despite the price of iron ore at an almost three-year low of $112, analysts said BHP and Rio will continue to benefit from the export of the commodity because of the low cost of production.

Since Rio Chief Executive Tom Albanese considers the firm's iron ore business in Australia as healthy under any probably macroeconomic scenario, the miner announced large investments in its mines in Pilbara with the target of boosting yearly production to 353 million tonnes by the first half of 2015, which is half a decade earlier than BHP's aim of reaching the same level of iron ore production.