Rio, BHP scrap iron ore venture

Rio Tinto and BHP Billiton have announced they have scrapped plans for their $120 billion iron ore joint venture in Western Australia's Pilbara region.

Both companies have been advised the proposal would not be approved in its current form by the European Commission, the Australian Competition and Consumer Commission, Japan and Korea's Fair Trade Commissions and the German Federal Cartel Office.

BHP and Rio say some regulators wanted changes that the two miners were not prepared to accept.

The companies say the decision to abandon the deal is regrettable.

Rio Tinto chief executive Tom Albanese said he was disappointed the project would not be going ahead.

"The full value of the synergies on offer from a 50-50 joint venture was a prize well worth pursuing," he said in a statement.

"Both companies have worked hard together over the last 16 months in a positive spirit to demonstrate its pro-competitive effects and I am disappointed that ultimately the regulators did not agree with us."

BHP and Rio planned to combine their operations in a 50-50 joint venture in the Pilbara.

The companies expected the joint venture to save them around $10 billion in costs.

However, European steel makers were anxious about rising iron ore prices and said the plan was anti-competitive.

They said the German vehicle-making industry would be particularly disadvantaged.

Mining analyst Gavin Wendt from MineLife says the decision to scrap the joint venture is not surprising.

"The writing was certainly on the wall as far as competition regulators were concerned, particularly in Europe which has a very vocal steel industry," he told ABC News.

"So it was always going to be very difficult right from the outset… I think BHP and Rio have seen the writing on the wall and they've decided to call it off before the adjudicator has to make his decision."

The miners have mutually agreed that no break fee is payable.

However, Mr Wendt says the aborted deal is likely to have cost the companies hundreds of millions of dollars in consultancy fees and other expenses.

He says it does not reflect well on the track record of BHP Billiton's chief executive Marius Kloppers.

"Since he's taken over the reins of CEO at BHP he's probably made two rather monumental stuff-ups," said Mr Wendt.

"The original bid for Rio Tinto was always going to attract a lot of negative publicity in terms of opposition from steelmakers around the world in particular and that was what in essence brought that particular deal undone."

He says both companies then underestimated opposition to an iron ore merger.

"I think they've just totally underestimated the strident opposition amongst the steel industry around the world to any sort of increase in the power base of these two companies."

However, Mr Wendt says there is unlikely to be any significant effect on the price of iron ore.

"I don't really see too much downside in terms of iron ore prices, and certainly I think most people in the market wouldn't have expected this particular deal to get up," he added.

An analyst at Fat Prophets, David Lennox, says both companies have alternative plans for growth, with Rio Tinto saying it already plans to spend more than $13 billion on expansion by the end of next year.

"I think for Rio the plan b is [to] organically grow, and they've just announced that," he told ABC News 24.

"For BHP, the $5 billion equalisation payment could be a good supplement to the $40 billion Potash Corporation bid."

Analysts say the decision is also unlikely to benefit the smaller iron ore miners in Western Australia, unless they can gain greater access to the major companies' rail lines.

"If BHP and Rio follow through with this suggestion that they might be able to gain access to each other's railway lines, then the argument's going to be if you can do it for each other, why can't you allow third party access," Mr Wendt said.