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article from smh Nameless could be better for Rio

IT SEEMS BHP Billiton and Rio Tinto will stop at nothing to maintain their duopoly over the Pilbara iron ore industry - even if that means doing deals with tiny explorers to lock up deposits in the region.

So while Xstrata said last week that it was looking to enter the iron ore business, Rio and BHP already have a huge advantage over the growing Anglo-Swiss miner.

The biggest recent Pilbara consolidation deal came in July, when Rio entered a joint venture with iron ore heiress Gina Rinehart to develop her massive Hope Downs deposit.

But last week was also a busy week for both mining giants.

On Wednesday Cazaly Resources revealed it was negotiating a memorandum of understanding that would give BHP the rights to buy iron ore from the explorer's Shovelanna deposit, which is near BHP's Orebody 18 mine.

Not one to be overshadowed by the big global miner, Rio Tinto announced on Friday it had signed a letter of intent to develop the Nameless Prospect of West Australian exploration hopeful AusQuest.

It seems Rio began negotiating with AusQuest in September, just weeks after Cazaly picked up the Shovelanna deposit from under its nose in late August when Rio accidentally let its lease lapse.

Although Rio has appealed to WA's State Development Minister, Alan Carpenter, to retain control of Shovelanna, in some ways the AusQuest deal makes more sense for Rio.

The Nameless Prospect is just 5 kilometres from Rio's Pilbara mining centre, Tom Price, while the Shovelanna deposit is about 75 kilometres away from Rio's closest infrastructure.

The Shovelanna deposit borders Orebody 18, meaning any iron ore mined by Cazaly would be sold on-site to BHP, which would ship it to Port Hedland.

Although Rio had not drilled Shovelanna for 20 years before the lease lapsed in August, the company said it did not need to because it had already firmed up a solid resource of high-quality Brockman ore.

In contrast, the Nameless Prospect will not officially be in AusQuest's hands until February and the iron ore has only been sampled from the surface. It is understood to contain Marra Mamba ore similar to that which Rio mines at Yandicoogina and sells at a discount to the benchmark Brockman contract price due to its lower iron content.

Because Rio has a tenement bordering the Nameless Prospect's southern boundary, in some ways it is surprising Rio had not already bought up the exploration rights on its own.

"Sometimes it's hard to see things that may be on your doorstep," said AusQuest managing director Graeme Drew of Rio's puzzling decision not to apply for a licence over the tenement.

"We recognised the potential out there and submitted an exploration licence application."

AusQuest's shares more than doubled on Friday to close 19.5c higher at 38.5c, while Cazaly's shares remained in a trading halt at $1.50 as it finalised its deal with BHP.