BHP, Rio venture faces EU probe

BHP Billiton and Rio Tinto face a European Union investigation into whether their Australian iron-ore joint venture curbs competition.

 

Regulators will probe whether the deal between the world's second- and third-largest iron-ore producers is a restrictive business agreement, the European Commission, the EU antitrust authority in Brussels, said in a statement today. It didn't give a deadline to complete the investigation.

 

BHP and Rio say the 50-50 venture, combining mines, rail, ports and workforces in Western Australia's Pilbara region, will save them at least $US10 billion ($11 billion). The agreement will also concentrate power in the market for the steelmaking ingredient and result in higher prices for customers, steel industry group Eurofer, representing producers including ArcelorMittal and ThyssenKrupp AG, said in a statement.

 

''It's impossible to put specific timing on how long this investigation will take,'' commission spokesman Jonathan Todd told reporters in Brussels today. ''The commission will try to complete the investigation as quickly as possible.''

 

BHP and Rio said on December 5 that they expected to complete the deal by the end of 2010. The venture will also be reviewed by the Australian Competition and Consumer Commission, as well as antitrust authorities in Japan and Germany.

 

The EU may approve the transaction, ''potentially with conditions,'' Charles Kernot, a mining analyst at Evolution Securities Ltd. in London, said by phone today. The companies ''obviously think there's a good chance of success,'' he said.

 

Second attempt

 

BHP fell 20 pence, or 1 per cent, to 1,914.5 pence in London trading, giving the company a market value of 119 billion pounds ($212 billion), and London-based Rio fell 72 pence, or 2.2 per cent, to 3,220 pence.

 

The proposed venture is the second attempt to combine the mining companies' iron-ore operations in Western Australia. 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 commission, which had ''serious doubts'' over a combination that would control more than a third of global iron-ore exports.

 

The mining companies, amid pressure from steelmakers, in October also scrapped a plan to jointly market as much as 15 per cent of ore from their planned venture.

 

Faster, lower

 

''This is very much a production joint venture only, between ourselves and BHP Billiton which will enable us to deliver more iron ore to the market, faster and at lower costs,'' Rio spokesman Nick Cobban said by phone today. ''It won't affect pricing as pricing will continue to be decided by the market as a whole with both ourselves and BHP competing.''

 

Iron ore for immediate delivery into China surged to $US131.20 a metric ton on Jan. 8, the highest in at least 13 months, according to data compiled by The Steel Index, a venture of Steel Business Briefing.

 

Producers may benefit from a 31 per cent jump in contract prices in the year starting April 1 to the second-highest level on record, according to the mean estimate of 17 analysts surveyed by Bloomberg. Nomura Holdings and Bank of America Merrill Lynch see gains of as much as 50 per cent.

 

''We will continue to work with the European Commission and aim to convince them of the benefits for the venture and why it will not raise competition concerns,'' BHP's London-based spokesman Ruban Yogarajah said by phone.

 

Brazil's Vale SA, the largest iron-ore producer, BHP and Rio account for 68.5 per cent of iron ore shipped by sea, according to the Brussels-based World Steel Association.