BHP Chief?s Concerns For Rio Joint Venture
August 25, 2010
BHP Billiton and Rio Tinto’s proposed Western Australian iron ore joint venture is behind schedule, encountering tougher-than-expected regulatory headwinds and needs to be renegotiated if it fails to meet a self-imposed December 31 deadline, according to Marius Kloppers, BHP Billiton chief executive.
Mr Kloppers’ comments indicate the venture, worth $116bn and which was first proposed 15 months ago, is still far from completion. As BHP diverts its attention to its hostile $39bn bid for Canada ’s PotashCorp, there is speculation the iron ore venture may fail.
“The reality is it has been slower and more protracted,” Mr Kloppers said. “We hoped it would be different … it has been more difficult than anticipated a year ago.”
However, Mr Kloppers said the expected $10bn cost savings from combining both miners’ iron ore operations in Western Australia ’s Pilbara region was compelling. Mr Kloppers said there was a “high degree of common view” from the miners to pursue the joint venture.
If the 2010 deadline passes without regulatory clearance, the miners would have to “sit down and see what to do next”, he added.
Tom Albanese, Rio chief executive, last week said rising iron ore prices, the move away from annual pricing contracts to a quarterly system and heightened media attention had “raised the temperature of the regulatory process”.
Mr Albanese last week denied a media report in Australia that the iron ore proposal was facing collapse. “The synergies are indisputable and are large. They are a prize that is worth doing anything we can to achieve,” he said.
Japanese, Chinese and European steelmakers have opposed the BHP/Rio combination on the grounds it will restrict competition. BHP and Rio last year supplied close to 75 per cent of China ’s iron ore imports. The planned joint venture is also being examined by competition authorities in countries including Australia , Europe and China .