UPDATE 1-BHP to suspend iron ore output at Yarrie indefinitely

* BHP to stop producing at small Yarrie iron ore mine

* BHP drops Macmahon, last contractor at iron ore mines

(Adds details on Yarrie)

MELBOURNE, Feb 25 (Reuters) - Top global miner BHP Billiton

BHP.AX BLT.L said on Tuesday it will indefinitely suspend production at its Yarrie iron ore mine in Western Australia, part of its smallest iron ore operation, in its drive to cut costs.

BHP, on track to achieve $5.5 billion in savings this year, confirmed an earlier announcement by contractor Macmahon Holdings MAH.AX that BHP would take over running its Orebody 18, the last iron ore site still run by a contractor, by the end of June.

"As an additional productivity measure for the iron ore business, we have made the decision to suspend production at our Yarrie operation until further notice," BHP's iron ore president, Jimmy Wilson, said in a statement.

Yarrie is part of BHP's Goldsworthy joint venture with Japan's Mitsui & Co 8031.T and Itochu Corp , which accounted for less than 1 percent of the group's 97.8 million tonnes of iron ore output in the half year to December.

(Reporting by Sonali Paul; Editing by Paul Tait and Michael Perry)

((Sonali.Paul@thomsonreuters.com)(+61 3 9286 1419)(Reuters Messaging: sonali.paul.thomsonreuters.com@reuters.net))

Keywords: BHPBILLITON IRONORE/YARRIE