The proposed BHP/Rio JV is currently a "non-binding agreement"...

The proposed BHP/Rio JV is currently a "non-binding agreement" and can therefore be amended or terminated at any time.

My initial thoughts are that it may narrow the possibility of a takeover of UMC by Rio or BHP but has increased the possibility of UMC striking a deal with the majors and increased our chances of 3rd party rail access. I believe that it has significantly increased our chances of either striking a deal with the Chinese or a takeover by the Chinese.

There are numerous regulatory hurdles which need to be sorted out before this agreement is locked in, IF it ever comes to that. Indeed, I think that all of the existing Agreement Acts fall short in accommodating a BHP/Rio JV and rather than amending the Acts they may be forced to abandon most of them and start from scratch. Bear in mind that a common denominator of most of the Acts is to restrict the aggregate land holdings of any one entity and for that purpose the State deems a JV as one entity. This helps to limit the impact of the effects which a monopoly is likely to have within the sector.

The proposed JV certainly came from the left field and many are no doubt finding yesterday's 'shock' announcement a difficult tablet to swallow. The obvious losers would no doubt be the Chinese who will be aggressively arguing the case of a monopoly. But at the end of the day they will have negligible influence over the final outcome, but rest assure that they will be fighting the issue on a political front. On the other hand, shareholders on both sides of the fence have reacted very favourably, indeed the announcement was well greeted by most in the industry. I'm sure ever analyst and his dog will be running their ruler over the proposed JV in the coming months and investors will be eagerly awaiting their interpretation and recommendations.

There are numerous Iron Ore Agreement Acts (see below) in place which will no doubt have a direct influence on many aspects of the proposed JV, no less the existing tenement holdings of both parties. Bear in mind that the implications will extend beyond Rio and BHP to include their existing JV partners. I should point out that the existing Iron Ore Agreement Acts are contracts between the Government of Western Australia and proponents of major resource projects which are ratified by an Act of the State Parliament. They specify the rights, obligations, terms and conditions for development of the project and establish a framework for ongoing relations and cooperation between the State and the project proponent.

So how is the proposed JV likely to impact on the iron ore juniors?

☛ BHP and Rio may be forced to relinquish some/part of their tenement inventory.

☛ As one, the majors will be in a position to more efficiently utilise their rail networks and will no longer be able to justify their argument for not accommodating 3rd party access.

☛ Arguments for and against could be raised for the majors doing future deals with the juniors on both takeover and MOU fronts.

☛ The Chinese will be more determined than ever to either strike a deal and/or takeover as many juniors as possible.

☛ If the Chinese increase the threat of striking more deals and/or takeover of some juniors, it could prompt a swift reaction from Rio/BHP to do likewise and we may find ourselves in a bidding war.

LET THE GAMES BEGIN!

Iron Ore State Agreement Acts

• BHP Billiton (Termination of Agreements) Agreement Act 2006
• Iron Ore (Channar Joint Venture) Agreement Act 1987
• Iron Ore (Goldsworthy-Nimingarra) Agreement Act 1972
• Iron Ore (Hamersley Range) Agreement Act 1963
• Iron Ore (Hamersley Range) Agreement Act Amendment Act 1968
• Iron Ore (Hope Downs) Agreement Act 1992
• Iron Ore (McCamey’s Monster) Agreement Authorization Act 1972
• Iron Ore (Marillana Creek) Agreement Act 1991
• Iron Ore (Mount Bruce) Agreement Act 1972
• Iron Ore (Mount Goldsworthy) Agreement Act 1964
• Iron Ore (Mount Newman) Agreement Act 1964
• Iron Ore (Rhodes Ridge) Agreement Authorisation Act 1972
• Iron Ore (Wittenoom) Agreement Act 1972
• Iron Ore Beneficiation (BHP) Agreement Act 1996
• Iron Ore Direct Reduced Iron (BHP) Agreement Act 1996
• Iron Ore (Yandicoogina) Agreement Act 1996
• Iron Ore Processing (Mineralogy Pty Ltd) Agreement Act 2002