Iluka holds a royalty over iron ore produced from specific tenements of BHP Billiton’s Mining Area C (MAC) province in Western Australia.
The royalty results from a 1994 restructure of deferred payments owed to Consolidated Gold Fields Australia. MAC is a large iron ore mining area located in the Pilbara region in the North of Western Australia, operated by BHP Billiton.
The agreement provides for a revenue-based royalty and production capacity payments consisting of:
- the greater of (I) ongoing quarterly royalty payments of 1.232 per cent of Australian denominated revenue from the MAC Royalty Area; and
- a series of one-off payments of A$1 million tonne increase in the annual production level from the MAC Royalty Area during any 12 month period ending 30 June above the previous highest annual production level, paid within 30 days of the relevant amount of production being produced.
Mining commenced at the MAC Royalty Area in 2003. The royalty arrangement from the MAC Royalty Area provides Iluka's shareholders with an exposure to a high quality iron ore reserve base. The royalty also provides Iluka shareholders with the potential for additional capacity payments and ongoing revenue payments, without any exposure to the cost of operations or need to contribute capital for future expansions. Iluka benefits from any increases in production capacity from the MAC Royalty Area.
BHP Billiton has stated its intention to increase total iron ore output from Western Australia, with MAC expected to constitute an ongoing significant proportion of this increase.