BHP Billiton report that it has signed a Heads of Agreement with Leighton Holdings to acquire the HWE Mining subsidiaries that provide contract mining services to its Western Australia Iron Ore operations.

The Heads of Agreement relates to the mining equipment, people and related assets that service the Area C, Yandi and Orebody 23/25 operations. These operations collectively account for almost 70 per cent of Western Australia Iron Ore’s total material movement. The purchase price is US$735 million (A$705 million), subject to working capital adjustments.

BHP Billiton President Iron Ore, Ian Ashby said: “While this move to an owner-operator model will remove a layer of complexity and costs from our business, the real focus of this proposed transaction is the work force. Transitioning to owner operator in this way, rather than by replacing contractors through direct recruitment, is a lower risk strategy as it would be challenging to replace the highly skilled and long serving HWE employees in the current environment.”

The proposed acquisition is consistent with BHP Billiton’s previously stated intention to move the Western Australia Iron Ore business from contract mining to owner-operator mining. Subject to due diligence, definitive agreements and relevant internal and regulatory approvals, the transaction is expected to close during the fourth quarter of calendar year 2011.