UPDATE: West Australia Government To Cooperate With BHP-Rio JV
June 17 2009 - 4:10AM
Dow Jones News
BHP Billiton Ltd. (BHP.AU) Chief Executive Marius Kloppers has
Wednesday won the grudging cooperation of Western Australian
Premier Colin Barnett for the miner's planned iron ore joint
venture with Rio Tinto Ltd. (RTP) in the state's Pilbara
region.
Barnett, a long time critic of plans to bring the two miner's
iron ore operations together, said after meeting Kloppers he now
expects the deal to go ahead but will still push for the state to
benefit from it through stamp duty and higher royalty charges.
"The state will cooperate," he told reporters after a hour-long
meeting with BHP in Perth.
"I mean it is a reality that this merger is going to go ahead so
I'm not going to put my head in the sand and pretend it's not
happening," Barnett said.
Western Australia regards the planned joint venture as a change
in ownership transaction which should attract stamp duty, Barnett
said.
The state also wants decades-old royalty concessions
re-negotiated and it expects the BHP-Rio joint venture to pay "full
royalty rates" on all iron ore production, he said.
Barnett said the increase in royalties, which could be phased in
over several years, may increase state revenues by "hundreds of
millions of dollars".
Kloppers "understood our position", Barnett said, but hasn't
made any concessions to the state's call for increased iron ore
royalties and stamp duty on the transaction.
The state government and BHP haven't yet reached the stage of
detailed negotiations, Barnett said, but have agreed to meet every
eight weeks or so to discuss the deal.
BHP and Rio have said they hope to reach a binding agreement by
late this year leading to the joint venture starting operations
mid-2010.
The iron ore deal, announced earlier this month, would see the
pair form an equal production joint venture which they believe will
deliver synergies of more than US$10 billion.
The pair will market the majority of their product separately, a
detail of the deal designed to ease competition concerns sparked by
the combination of the operations of the world's second and third
biggest producers of the key steelmaking input.
Despite this, Rio has highlighted the risk that the pair could
be forced to sell some assets to win approval from regulators for
the deal.
In a section of the offer document for Rio's US$15.2 billion
rights issue outlining potential risks, the miner said the joint
venture with BHP is subject to approval by competition regulators
in Australia and Europe and that winning approvals could require
asset sales.
"Rio Tinto and/or BHP Billiton may be required to divest, or
commit to divesting, businesses and/or assets to third parties
and/or to make other commitments or concessions to the regulatory
authorities which may make the transaction less financially and
operationally attractive," Rio said in the document.
Rio also noted that some of the US$10 billion in synergies the
pair are targeting will depend on winning the cooperation of
existing joint venture partners at the iron ore operations.
The Australia-listed shares of Rio were trading ex-rights
Wednesday and, while they fell 21% to A$57.68 by market close, they
were only down 0.1% on the ex-rights price of A$57.76 which traders
said was a good performance on a day when other miners fell and the
broader Australian market ended down 1.5%.
-By Stephen Bell, contributing to Dow Jones Newswires;
61-8-9244-4243; sgbell@bigpond.com