bhp / rio joint venture

Last time this story surfaced, FMG"s share price went nuts.
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From Times Online December 4, 2009


BHP and Rio Tinto to agree $100bn joint venture

David Robertson


BHP Billiton and Rio Tinto, the world’s largest mining companies, will agree terms on their $100 billion (£60 billion) iron-ore joint venture tomorrow morning.

Last-minute changes could delay the signing by up to 48 hours as lawyers pore over the details, but people who are close to both companies were optimistic that they would hit tomorrow’s target.

The joint venture will merge the iron-ore mining operations of BHP and Rio in the Pilbara region of Western Australia, although both companies will continue to sell their product separately.

There are understood to be more than 50 binding resolutions in the complex agreement, which has taken six months to negotiate.


Under the terms of the agreement, BHP will pay Rio $5.8 billion to equalise the shareholdings in the joint venture, as Rio’s Pilbara operations are larger.

This figure could change in the coming months depending on how much the companies invest in their operations before completion of the joint venture.

Analysts have speculated that BHP’s higher planned capital expenditure programme could entail a reduction in the $5.8 billion figure.

However, those close to the deal have indicated that Rio might push for a higher equalisation payment to represent the increasing value of iron ore because of strong demand from China.

The final payment will be agreed when the companies complete the joint venture, which could take another six months as regulators around the world assess the deal.

Steelmakers in China and Europe have criticised the joint venture out of concern that it could give BHP and Rio too much market power.

The iron-ore export market is dominated by three companies: Vale, of Brazil, BHP and Rio.

BHP and Rio have argued that they are merging only their mining operations and, as such, this will have no impact on pricing or the sale of the ore.

The joint venture is expected to generate cost savings of at least $10 billion.