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Red Hill Iron has agreed to divest its 40% stake in the Red Hill Iron Ore joint venture (RHIOJV) in Western Australia to Mineral Resources (MRL) for $294.36m (A$400m).

Mineral Resources’ wholly owned subsidiary will make the payment to Red Hill Iron in two tranches. Half of the amount is planned to be made on closing of the transaction, which is scheduled for early next month.

The remaining amount will be paid once the first commercial iron ore shipment from the RHIOJV tenements leaves the port.

Additionally, Red Hill Iron will be entitled to a 0.75% royalty of free on board (FOB) revenue on all the iron ore extracted and sold from the RHIOJV tenements, and from MRL’s Bungaroo South tenement.

Mineral Resources managing director Chris Ellison said: “The transaction is in line with our strategy to build own and operate infrastructure assets to unlock stranded iron ore deposits in the Pilbara and build a long-life, sustainable iron ore business exporting out of Onslow.

“The RHIOJV holds a sizeable iron ore Mineral Resource in a strategically significant location in the West Pilbara. MRL’s proposed acquisition of RHI’s participating interest in the RHIOJV will enhance the Company’s iron ore footprint in the West Pilbara as we progress our Ashburton Hub development.”

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Red Hill said that the decision to divest the stake comes as it could not reach an agreement with an entity involving Aquila Resources and POSCO to further develop the project.

The RHIOJV was formed in 2005 after the Australian Premium Iron joint venture (APIJV) farmed into the mineral tenements of Red Hill Iron.

A 50:50 JV between Aquila Steel and AMCI (IO), APIJV has a 60% holding in RHIOJV and will continue to retain the stake.

AMCI (IO) is subsequently owned 51% by AMCI and 49% by South Korean steelmaker POSCO.

In a statement to shareholders, Red Hill Iron’s board said: “The sale agreement is the culmination of a long process of engagement by which your board has sought to encourage the expedient implementation of a mining operation at Red Hill.”