UPDATE: Rio Tinto Says BHP Iron Ore JV Synergies Could Rise

Rio Tinto Ltd. (RTP) Iron Ore Chief Executive Sam Walsh said Monday the synergies on offer from a planned iron ore joint venture with BHP Billiton Ltd. (BHP.AU) could rise as the pair share more information.

Walsh made the comments at an investor briefing in Sydney at which Rio gave off more signals it is regaining its confidence after a turbulent 18 months and also tipped some areas to watch for growth, including coal in Mongolia and iron ore in India.

Rio and BHP have said they expect potential synergies of more than US$10 billion from bringing together their businesses in the Pilbara region of Western Australia and Walsh said that, once regulatory approval is received, they will be able to make a more detailed study of potential savings.

"I suspect that when we are able to jump the fence and we are able to look at the synergies that they have been tracking and developing versus the ones that we have been developing, there will in fact be greater opportunity than we originally thought," he told an investor briefing in Sydney.

Rio Tinto said the two miners remain on track to set definitive terms on the deal by the Dec. 5 deadline and have made initial approaches to all the regulators with jurisdiction over the deal.

However, Chief Executive Tom Albanese said the company doesn't yet know how the transaction will be dealt with by the European Commission, which could treat it as a joint venture or subject it to a more searching review if it considers the deal a full merger.

Rio's investor briefing Monday was a repeat of that given in London on Friday and featured signs of growing confidence from the miner as it lightens its once crippling debt load and boosts spending on growth projects.

As well as the increase in its 2010 capital spending forecast to between US$5 billion and US$6 billion, from US$2.5 billion previously, Rio revealed it had paid down another US$1.5 billion of debt.

"We are confident that the cash generation of the business and the recent disposal proceeds are sufficient to allow us to make this repayment at the same time as we increase our spend on value-adding growth projects," Chief Financial Officer Guy Elliott said.

Opportunities In India And Mongolia

One of the messages of the briefing was that Rio is broadening its growth focus beyond the three core commodities of iron ore, copper and aluminum and would now be driven by the quality of the opportunity, not the commodity.

Albanese pointed to coal in Mongolia as one area where Rio could invest more funds, with Mongolian coal likely to end up being sold into the seaborne markets in China at similar prices to those of seaborne coal.

"From my perspective this is a place we need to be investing," he said.

Albanese said Rio already has investments in coal in Mongolia through its stake in Ivanhoe Mines Ltd. (IVN) and through its own coal exploration ground.

Walsh also highlighted Rio Tinto's long-stalled iron ore joint venture in India's Orissa province as a project that was finally moving forward, calling it an "outstanding opportunity".

The joint venture with state government-owned Orissa Mining Corp. was announced in 1998 but there has been precious little progress, with reports of disagreements between the partners over whether the ore produced should be sold on the Indian domestic market or exported.

"We have made substantial progress with our partners," Walsh said.

Rio appears to have given ground on the export question, with Walsh saying that most of the ore produced would go to supplying the domestic Indian market.

Walsh said Rio was now more optimistic about completing an agreement with the government that would allow studies to begin on a project he said could have first-stage production of about 15 million tons a year.

The iron ore market is expected to remain tight, Walsh said, adding that the outlook was positive for miners in the next round of annual price negotiations with steelmakers.

The three big iron ore miners failed to strike a benchmark price with China last year, and the signs are that this year's talks may also be protracted, with the China Iron & Steel Association calling for a "China price" and a move to starting contracts in January, not at the beginning of the Japanese financial year in April.

Walsh said Rio Tinto needs to speak directly to lead negotiators Baosteel and the China Iron & Steel Association to understand what the Chinese are seeking.

Rio Tinto's relations with China, now its biggest customer, have taken a battering this year, with the iron ore pricing stand-off, the detention of four Rio employees by Chinese authorities, and the miner's decision to scrap a US$19.5 billion deal with Aluminum Corp. of China, or Chinalco, all taking their toll.

Albanese said strengthening the relationship with China would be a key focus for the company in 2010 and that he still sees opportunities for Rio to cooperate with Chinalco.

-By Alex Wilson, Dow Jones Newswires; 61-3-9292-2094; alex.wilson@dowjones.com

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