Rio Tinto and BHP Billiton sign binding agreements on iron ore production joint venture

Foes turned partners Rio Tinto and BHP Billiton yesterday signed binding agreements on their proposed joint mining venture, announced in June this year, (See: Rio-BHP team up for mining venture) that cover all modalities  of the mining venture in the Pilbara region of Western Australia. 

The companies have also filed submissions with the European Commission and the Australian Competition and Consumer Commission in relation to the proposed production joint venture and expect to submit filings in other relevant jurisdictions shortly.

The companies say they expect that the European Commission will review the production joint venture. Taking into account all regulatory review processes and shareholder approvals, Rio Tinto and BHP Billiton anticipate completion of the jouint venture in the second half of calendar year 2010
The production joint venture encompasses all current and future Western Australian iron ore assets and liabilities and will be owned 50:50 by Rio Tinto and BHP Billiton.

It will deliver substantial synergies resulting from combining the companies' Western Australian iron ore operations, with the aim of producing more iron ore at lower cost. Rio Tinto and BHP Billiton expect the net present value of these production and development synergies will be in excess of $10 billion (100 per cent basis). As previously outlined, these synergies are anticipated to come from:

  • Combining adjacent mines into single operations;
  • Reducing costs through shorter rail hauls and more efficient allocations of port capacity; 
  • Blending opportunities which will maximise product recovery and provide further operating efficiencies;
  • Optimising future growth opportunities through the development of consolidated, larger and more capital efficient expansion projects;
  • Combining the management, procurement and general overhead activities into a single entity.

Tom Albanese, chief executive, Rio Tinto, said, "Signing binding agreements brings us one step closer to unlocking the full production potential of our Pilbara iron ore assets and achieving substantial benefits for all our stakeholders. Completing the joint venture is a priority for Rio Tinto in 2010 and I look forward to realising this vision and capturing the synergies for our shareholders."

BHP Billiton CEO, Marius Kloppers, said, "We are very pleased to now have formal and binding agreements in place to develop this important joint venture. With the history of both companies' attempts to join together these two world-class iron ore operations in WA at various times, this deal has effectively been more than a decade in the making. It is an important milestone towards delivering substantial additional benefits to both sets of shareholders, and to the shareholders of our respective joint venture partners in the Pilbara."

On 15 October 2009, Rio Tinto and BHP Billiton announced that the partners would not proceed with any joint venture marketing activity (See: Rio Tinto, BHP Billiton junk Pilbara ore marketing plan). This is the only material change to the non-binding core principles agreement signed on 5 June 2009.

The production joint venture will deliver all its iron ore output to Rio Tinto and BHP Billiton to sell independently through their own marketing groups.