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BC ends contract to save cash

A Watpac truck operating at the Nullagine joint venture project in the Pilbara. Picture: Michael Shields/The West Australian.

UPDATE 1.15pm: BC Iron will terminate a mining contract with Watpac three months early in a bid to save $2-$3 a tonne in costs.

The move highlights how desperate the iron ore miner is to cut costs wherever it can as the sliding iron ore price continues to squeeze its margins.

Fortescue considering its options

BC announced this morning it would exercise its early termination rights over the mining, crushing and screening contract which was due to expire in September.

Watpac would wrap-up three months early at the Nullagine joint venture project at the beginning of July.

BC and its joint venture partner Fortescue Metals Group is obligated to make a one-off contract termination payment to Watpac and purchase certain second-hand equipment including a Vermeer 1655 surface miner, a 2mtpa mobile crushing and screening plant and four Haulmax trucks. The assets would continue to operate at Nullagine.

BC said the move would save it $2-$3 per wet metric tonne in production costs.

BC made the decision to terminate the Watpac contract after securing a cheaper mining contract with Viento for its Warrigal hub last month.

"Ownership of the surface miners in particular, will provide BC Iron with greater flexibility in structuring any new contracts and reduce inbuilt capital - related operating charges at site," the company said in a statement.

"The benefit of this strategy is expected to be seen in 2016 cost guidance to be released in due course.

"The contract termination also removes a significant fixed cost element from the NJV's cost base."

BC also reaffirms full-year sales guidance of 5.2-5.6 million wet metric tonnes and second-half C1 cash cost guidance at the lower end of a range of $47-$51 per wet metric tonnes.

Managing director Morgan Ball thanked Watpac for its contribution to the Nullagine joint venture over the past five years.

The iron ore price fell to a fresh 10-year low of $US49 a tonne overnight.

BC shares were off 1.5 cents, or 4.17 per cent, to 34.5 cents at the close.