Mining Magazine > Panorama > Rio and BHP join iron ore forces

Panorama

Mining giants Rio Tinto and BHP Billiton have announced that they have signed an agreement to establish a production joint venture covering the entirety of both companies' Western Australian iron ore assets.  

The collaboration will encompass all current and future Western Australian iron ore assets and liabilities and will be owned 50:50 by the two companies. The venture is expected to unlock significant value from the companies' overlapping, world-class resources, currently believed to be in excess of US$10 billion net value.

The companies plan to combine adjacent mines into single operations, reduce costs through shorter rail hauls and more efficient allocations of port capacity, and create blending opportunities to maximise product recovery. These activities will enable the duo to optimise future growth opportunities and consolidate their management and procurement expertise, in a bid to create more capital efficient projects.

The joint venture will operate as a cost centre and deliver iron ore in equal volumes to BHPB and Rio Tinto, to be sold independently through their marketing groups. In order to equalise the contribution value of the two companies, BHPB will pay Rio Tinto US$5.8 billion for equity type interests at financial close to take its interest in the joint venture from 45% to 50%.

Senior management of the entity will be determined jointly with equal participation from both companies. The initial chairman of the non-executive owners' council will be Sam Walsh, currently Rio Tinto’s iron ore chief executive, and the CEO will be BHPB iron ore president, Ian Ashby. Future CEOs will be appointed by mutual consent.

BHPB CEO Marius Kloppers said: "The synergies in this combination are so substantial that both companies have been investigating ways to combine these operations for more than a decade. I am delighted that we have found a solution that works for both companies. This joint venture brings together world-class iron ore resources, infrastructure and people, unlocks large synergies and is an outstanding outcome for all stakeholders."

Tom Albanese, chief executive of Rio Tinto, echoed these comments: "We have long recognised the natural fit of our two iron ore businesses and the industrial logic for bringing them together. We are very pleased that we have been able to realise this vision which offers value to both companies."