MORE IRON ORE: RIO/BHP JV UNDER TOUGH SCRUTINY by .Gail .Rosenquist
Rio Tinto and BHP Billiton have just signed binding agreements to establish an iron ore production and shipping joint venture (JV) in the Pilbara region of Western Australia. The companies have told regulatory institutions that the deal would not cause further monopoly in the industry or lead to higher iron ore prices. They say it would merely bring more iron ore into the world market, at a lower cost. In their announcement, Rio and BHP said that the JV encompasses all current and future Western Australian iron ore assets and liabilities and will be owned 50/50 by the two companies. It will deliver substantial synergies, they said. BHP Billiton and Rio Tinto placed the current net value of the production and development synergies at more than US$10 billion (100% basis). The JV
The . synergies . are . expected . to . come . from: . combining . adjacent . mines . into . single . operations; .reducing .costs .through .shorter .rail .hauls . and . more . efficient . allocations . of . port . capacity; blending opportunities that will maximize product . recovery . and . provide . further . operating . efficiencies; . optimizing . future . growth . opportunities . through . the . development . of . consolidated, .larger .and .more .capital .efficient . expansion projects, and combining management, . procurement . and . general . overhead . activities .into .a .single .entity . The .JV .plan .originally .was .announced .June . 5 .in .the .form .of .a .nonbinding .agreement; .on . October 15, the marketing aspect of the proposal .was .eliminated . .This .elimination .was .the . only .material .change .to .the .binding .agreement, . which .was .announced .on .December .5 .
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SKILLINGS MINING REVIEW
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Under . the . agreement, . up . to . 15% . of . production . was . proposed . to . be . sold . by . the . joint . venture, . independent . of . Rio . Tinto . and . BHP . Billiton . After . discussing . it . further, . the . two . decided . not .to .proceed .with .the .joint .venture .marketing . . As . a . result, . all . production . from . the . proposed .joint .venture .would .be .marketed .separately .by .Rio .Tinto .and .BHP .Billiton . The . two . companies . said . that . the . change . should .clarify .the .nature .of .the .JV .for .customers .and .emphasize .its .focus .on .realizing .significant .production .and .development .synergies . The . companies . have .filed . submissions . with . the . European . Commission . and . the . Australian .Competition .and .Consumer .Commission . (ACCC) . .They .expect .to .submit .filings .in .other . relevant .jurisdictions .shortly . The .ACCC .said .it .hoped .to .announce .a .deci-
JANUARY 2010
sion .on .the .deal .on .Feb . .24, .2010; . .submissions . can .be .made .until .Jan . . 15 . . In .2008, .the .ACCC . approved .the .unfriendly .takeover .of .Rio .Tinto . by .BHP, .making .it .unlikely .that .the .body .will . rule .against .the .new .JV, .said .Warren .Edney, .a . resource .analyst .with .RBS .Morgans, .an .Australian .stockbroker . In .February .2008, .BHP .Billiton .had .launched . an .all-out, .hostile .bid .for .Rio .Tinto, .which .rejected .the .$147 .billion .offer .from .BHP .because . it . was .“significantly” . below . value . . BHP . finally . abandoned .its .bid, .saying .turmoil .in .financial . markets, .uncertainty .about .the .global .economic .outlook .and .regulatory .concerns .in .Europe . meant .the .deal .was .no .longer .in .its .shareholders’ .best .interest . .BHP .had .to .wait .12 .months .to . make .another .offer . .
