BHP and Rio Tinto agree terms of iron ore joint venture

“The companies today signed binding agreements on the proposed JV that cover all aspects of how the joint venture will operate and be governed,” Rio said in an e-mailed statement. “The companies have also filed submissions with the European Commission and the Australian Competition and Consumer Commission in relation to the proposed production joint venture and expect to submit filings in other relevant jurisdictions shortly.”

The plan, announced in June, is to combine mines, rail, ports and workforces in Western Australia's Pilbara region, the world's second-largest iron ore resource, into a 50-50 joint venture. The companies expect the venture to be completed by mid-2010, today's statement said.

“Signing binding agreements brings us one step closer to unlocking the full production potential of our Pilbara iron ore assets and achieving substantial benefits for all our stakeholders,” Rio Chief Executive Officer Tom Albanese said in the statement. “Completing the joint venture is a priority for Rio Tinto in 2010 and I look forward to realizing this vision and capturing the synergies for our shareholders.”

The deal will curb competition and development of mining capacity, steel industry group Eurofer, representing producers including ArcelorMittal and ThyssenKrupp AG, said Nov. 16.

EU Review

The plan is the second attempt to combine both mining companies'iron ore operations in Western Australia. Melbourne- based BHP abandoned a hostile bid for Rio in November 2008, citing Rio's debt, falling commodity prices and regulatory hurdles. The bid faced a probe from the European Commission, which had “serious doubts” over a combination that would control more than a third of global iron ore exports.

“The companies understand that the European Commission will review the production joint venture under Article 101,” today's statement said.

Under the article, the commission will investigate whether the proposed joint venture is a restrictive business agreement that may harm competition.

Australia's BHP and London-based Rio are the world's second- and third-biggest iron ore producers, behind Brazil's Vale SA. BHP and RIO may supply 75 percent of China's imports of iron ore this year, according to Goldman Sachs JBWere Pty.

Both companies said in June they planned to reach a binding agreement by Dec. 5 before seeking regulatory approvals. BHP was to have paid Rio a so-called equalization payment of about US$5.8 billion to bring the two companies into 50-50 ownership.

Combining iron ore assets in Western Australia's Pilbara region had been studied as far back as 1999 and was a key driver behind BHP's bid for Rio, Citigroup Inc. said in a note in May.

The mining companies, amid pressure from steelmakers, in October scrapped a plan to jointly market up to 15 percent of ore from the proposed venture.

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