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BHP’s potential sale stalled

Mining heavyweight BHP Billiton (ASX: BHP) has reportedly been exploring the possibility of selling its Mount Goldsworthy iron ore project, located in the Pilbara, to private company Nimbus Mines.

The mine has been closed and would be re-opened by Nimbus as an underground mine. BHP would retain the magnetite resources whilst Nimbus would mine the high-grade hematite ore.

However, the deal could be hindered by the discovery of acid contamination at the site, which could result in a cleanup bill worth up to $100 million for the company. A report obtained by The Australian revealed that BHP had sought the approval of West Australian Premier Colin Barnett to be “fully released” for any potential environmental liability at the site, and would also need to be indemnified by Nimbus against any potential liability.

However, in a letter to Nimbus last year, BHP’s head of strategy and development, Jonathan Price, conceded that the company was very unlikely to be released from its environmental obligation. The letter reportedly said: “Given the state’s likely position… BHP Billiton is of the view that it must continue to plan on the basis that it will maintain primary responsibility to manage rehabilitation at the Mt Goldsworthy mine.”

This uncertainty has acted as a hindrance upon the potential deal, with Nimbus claiming that the cleanup bill will be far less than the $100 million mentioned, with the acid contamination being “at the low end of being an environmental hazard.”

The WA Department of State Development is satisfied by the way BHP has approached the situation, whilst the company itself is continuing regular environmental monitoring at the site.

Foolish takeaway

The news comes just a day before the company will release its full-year results, with BHP still focusing on drastically cutting costs and unnecessary spending. Rio Tinto (ASX: RIO) has a similar focus on cost-cutting, and has agreed to end its joint venture project with Metals X (ASX: MLX) as it seeks to cut non-core projects.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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