2nd UPDATE: Rio Tinto, BHP Will Not Jointly Market Iron Ore
October 15 2009 - 2:51AM
Dow Jones News
Rio Tinto Ltd. (RTP) and BHP Billiton Ltd. (BHP.AU) said
Thursday that they have agreed not to jointly market any output
from their proposed iron ore joint venture, in a move that looks
designed to improve the deal's chances of regulatory approval.
The pair said the decision had been taken to clarify that the
combination of the two miners' operations in the Pilbara region of
Western Australia state is a production joint venture and not about
coming together to market ore.
The move comes in response to a chorus of opposition to the
planned joint venture from steelmakers, who worry that the
combination of the world's second- and third-largest iron ore
producers will result in higher prices for the key steelmaking
input.
But the main audience for the miners' message is likely to be
the European Union, which is yet to announce what level of
regulatory scrutiny it plans to apply to the deal.
Under the terms of the non-binding agreement the pair announced
in June, BHP and Rio had planned to jointly market up to 15% of the
combined production from their iron ore operations in the
Pilbara.
But the miners said Thursday that, following discussions, they
have decided not to proceed with the joint venture marketing
activity and that all production from the joint venture will be
marketed separately.
"The two companies believe that this change will clarify the
nature of the JV for customers and emphasize its focus on realizing
significant production and development synergies," Rio and BHP said
in a joint statement.
David George, mining analyst at JP Morgan, said he had never
understood why the two miners had included the joint marketing
clause in the first place, as it just gave ammunition to opponents
of the deal.
"It was like a red rag to a bull, allowing steel customers to
point the finger and say there is going to be some joint
marketing," he said.
"It makes sense to pull it out but I don't think it is going to
stop steel customers making submissions that are very anti the
whole deal."
The European Union is yet to say whether it plans to treat the
deal as a joint venture or a full blown merger, which would involve
much deeper scrutiny, and George said he believes BHP and Rio have
a less-than-50% chance of gaining approval.
Removing the joint marketing clause will stop opponents of the
deal using this as a platform for objecting but steelmakers are
still likely to argue that the joint control of such a large slice
of global iron ore supply gives BHP and Rio too much power to
influence pricing.
The two miners said they are pleased with progress towards a
definitive joint venture agreement, which they expect to finalize
on schedule, with the original announcement giving them until Dec.
5.
-By Alex Wilson, Dow Jones Newswires; 61-3-9292-2094;
alex.wilson@dowjones.com