Atlas Iron Ltd., an Australian iron ore producer, will start selling the material to Asian steel mills next month using a new mechanism blending cash and benchmark prices.

About 70 percent of its iron ore production will be sold on a so-called "mutual fairness" basis where mills pay the midpoint between the annual contract and the cash price, when the spot price is 20 percent above the benchmark, Atlas Managing Director David Flanagan said in an interview from Perth today.

The spot market price of ore delivered to China, the world's largest buyer, rose to the highest in more than a year last week. BHP Billiton Ltd. and Rio Tinto Group are pushing for steelmakers to buy less ore under annual contracts.

"We are definitely seeing a lot of upward pressure on pricing," Flanagan said by telephone. "I would expect there might be other companies that have those mechanisms in their off-take agreements. There are hundreds of steel mills out there and surely Atlas can't be the only one seeking that exposure to the spot market."

Atlas, which today agreed to buy Aurox Resources Ltd. for A$143 million ($131 million), rose 1.8 percent to A$2.25 at 2:08 p.m. Sydney time on the Australian stock exchange. It has gained 19 percent this year and has four "buy" ratings, three "hold" ratings and no "sell" ratings, according to Bloomberg data.

Further Acquisitions

Atlas may consider further acquisitions of companies with iron ore projects in the Pilbara, Flanagan said.

"We are not negotiating with anyone at the moment but we have contact with a large number of groups over time," he said. "We are not going on a rampage but if someone were to walk in the door with a good deal we'll talk to them."Cash prices for iron ore are trading at about $130 a metric ton, compared with the benchmark price of about $60 a ton that Rio agreed with Japanese and Korean mills last year.

Mills and producers are holding talks now to negotiate prices for the New Year that starts April 1. Prices may rise 70 percent to peg costs closer to market rates, Nomura Holdings said last week.

Under Atlas's "mutual fairness" pricing agreement, if a benchmark price has not been agreed by the end of June, it will consider provisional pricing or a reversion to the spot price, Flanagan said.

Atlas remains in talks with "more than one group" about a potential sale of part of its Ridley magnetite project in Western Australia, he said.

NMDC Ltd., India's biggest iron-ore producer, has teamed up with ABS Consulting of Saudi Arabia and Boulder Steel Ltd. to make a $230 million bid for a stake in an Australian iron-ore project owned by Atlas, the Economic Times reported at the weekend, citing a person it did not name. The project may be the Ridley project, it said.

Flanagan wasn't able to provide further details on the talks because of confidentiality agreements.