BHP, Rio scrap plan to jointly market some iron ore

Reuters | Thu, 15 Oct 2009 16:13
[miningmx.com] -- Rio Tinto and BHP Billiton, Australia's top two iron ore miners, have scrapped a plan to co-market some iron ore from a proposed Australia joint venture that has drawn criticism as being anti-competitive.

The two mining giants' plan to combine their iron ore assets centered in Western Australia had met with howls of protests from customers, particularly Chinese steel mills, worried about further concentration of the industry.

Rio and BHP -- fierce competitors in the iron ore-rich Australian outback -- had pledged that they would keep their marketing operations separate for at least 85 percent of output but said on Thursday all production would now be marketed separately to "clarify the nature of the JV."

Sources close to the decision said iron ore customers were confused by the venture's structure, which also ran the risk of raising eyebrows among anti-trust regulators in Europe and elsewhere.

"They want to make sure that there are no sticking points that would eventually stop the joint venture from proceeding," said Steve Robinson, a fund manager with Alleron Investment Management.

A Rio spokesman, Tony Shaffer, declined to comment on whether the plan was dropped partly in hopes of securing competition regulators' approval for the production component of the venture.

"We are engaging with regulators. It's in the early stages," Shaffer said, adding that the companies would file a formal submission to regulators such as the European Commission only after they sign their final agreement, expected by Dec. 5.

Rio scrapped a proposed $19.5-billion tie-up with Chinese metals group Chinalco two weeks prior to announcing the deal with BHP on June 5.

An earlier takeover bid by BHP for Rio also collapsed amid tanking commodity prices and concerns anti-trust regulators would demand too many concessions.

RECORD CHINA DEMAND

China on Wednesday reported record iron ore inflows in September, a surprising jump that reflected strong steel output in the world's largest producer.

That may strengthen Rio and BHP's bargaining positions in annual iron ore talks for the 2010/2011 contract year which start this week. Contract talks for the current year have ground on for months past their deadline without resolution.

"This is to give clarity and certainty that marketing will be 100 percent differentiated," UBS analyst Glyn Lawcock said.

Rio's relationship with Chinese customers in particular has been strained by the formal arrest in August of four of its iron ore price negotiatiors in China on charges of stealing commercial secrets.

Rio , which has been selling assets to pay off a mountain of debt amassed before the collapse of commodity markets last year, on Wednesday upped its 2009 forecast output of iron ore to between 210 million and 215 million tonnes, or 5-7.5 percent, after reporting a 12 percent leap in third-quarter output.

By 2011, BHP Billiton hopes to lift its annual Australian iron ore production 50 million tonnes to 205 million.

BHP and Rio said they still expected to finalise the joint venture agreement on schedule.

The Pilbara district in north west Australia where Rio and BHP mine is the world's single biggest iron ore deposit, sprawling over a half-million square kilometres, supplying more than 300 million tonnes of ore to steel mills worldwide this year.