On July 22, Australia’s competition regulator will announce its findings on a proposal by BHP Billiton Ltd and Rio Tinto Group to combine Western Australia iron ore operations.
This month, both the companies responded to information requests from the Australian Competition and Consumer Commission after the regulator delayed announcing its findings, earlier due on May 27.
Rio and BHP — the world’s second- and third-largest iron ore exporters, propose combining the Australian operations in a 50-50 venture to save at least $10 billion in costs. Some European and Asian steel makers oppose the plan on concerns it might reduce competition in the iron ore market. The venture, agreed to in June last year, will also be reviewed by the European Commission and requires shareholder approval as well.
Regulatory hurdles apart, higher iron ore prices since the announcement and Australia’s proposed 40 per cent tax on mining profits may alter the deal, analysts say. Under the proposed terms, BHP agreed to pay Rio $5.8 billion to equalise its contribution of assets to the venture. JPMorgan Chase said in a March report that Rio could ask for somewhere between $7.5 billion to $9.8 billion based on higher iron ore price estimates.
Combined value
“The fundamentals of putting the two businesses together are still there,” UBS AG analyst Glyn Lawcock said today. “The joint venture is the biggest project for both companies, with the biggest upside potential compared to other project options.”
The combined value of the entity is estimated at about $135 billion, Lawcock said.
Since Australia’s government announced its tax proposal on mining profits, Rio Tinto and BHP Billiton have been campaigning against the levy, wanting the government to exclude existing projects and reconsider the rate.