Mining giants face probe into joint venture

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

The European Commission, the EU antitrust authority in Brussels, said regulators would probe whether the deal between the world's second- and third-largest iron-ore producers was a restrictive business agreement,

It did not 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 US$10 billion ($14 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, claims.

"We expect them to get it approved despite the opposition," said Tony Robson, a Toronto analyst at BMO Capital Markets.

"Given that BHP and Rio Tinto have canned plans to jointly market a fraction of their output and given that we also see rising production from others globally, then it looks ... the other way around. The market is actually fragmenting."

BHP and Rio Tinto, amid pressure from steelmakers, in October scrapped a plan to market as much as 15 per cent of ore from their planned venture.

The companies said last month 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 proposed venture is the second attempt to combine the mining companies' iron-ore operations in Western Australia.

Melbourne-based 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 Japanese steel industry continues to view the establishment of the JV as a move that would restrict competition just as last year's proposed acquisition of Rio Tinto by BHP Billiton would have," Shoji Muneoka, chairman of the Japan Iron & Steel Federation, said last month.

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

"If the planned merger is approved, mining companies will likely have more influence on pricing," said Yoshiyuki Takano, a Tokyo analyst at Tokai Tokyo Securities. "Steelmakers would need to strengthen partnerships to contend with miners."

Rio spokesman Nick Cobban said: "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."

- BLOOMBERG