Australia's BC Iron gets royalty break as iron ore hits new lows

By James Regan

SYDNEY, April 1 (Reuters) - Australia's BC Iron said on Wednesday it will be able to defer A$8-A$12 million ($6.11-$9.16 million) in royalty payments, as it struggles amid a dramatic fall in iron ore prices.

Facing the prospect of mines shutting down, Western Australia state in December notified miners producing less than 20 million tonnes annually they could be eligible for a 50 percent deferral on the royalties they pay. It also froze port fees and tariffs for miners using the state's Indian Ocean export terminals of Dampier and Port Hedland.

Rio Tinto (Xetra: 855018 - news) , which is not eligible for the rebate because of its size, expects some 85 million tonnes of iron ore capacity to be taken out of the world market in 2015 because the price slump has made it too costly to produce, on top of an estimated 125 million tonnes last year.

Chinese mines - among the least efficient globally - will absorb most of the losses. But analysts have warned small Australian miners, such as BC Iron and Atlas Iron, were operating close to the break-even point and will need to reduce overheads if prices continue to drop.

Both BCI and Atlas have posted losses for the half-year ended Dec 31 versus profits in the corresponding period, which included hefty writedowns relating to the value of their mines.

"The amount, A$8-A$12 million, is not a great sum, but given the climate we are operating in, every bit will help," BC Iron Chief Executive Morgan Ball told Reuters by telephone.

Iron ore stood at $51 a tonne, data from The Steel Index showed - the lowest since late 2008.

Western Australia state, once the economic engine of Australia, in December recorded its first budget deficit in 15 years as revenues from iron ore plummeted.

In the boom years, multinationals Rio Tinto and BHP Billiton (NYSE: BBL - news) spent billions of dollars digging new mines.

Western Australia's state premier, Colin Barnett, has urged the two companies to rethink their expansion strategies in light of the soft market but to no avail.

Their strategy is to eliminate competition, even it means driving down the price to the break-even point.

Rio Tinto Chief Executive Sam Walsh has called the strategy one of "survival of the fittest," while Barnett has labeled it as "dumb." ($1 = 1.3098 Australian dollars) (Reporting by James Regan; Editing by Ed Davies)