Rio Tinto and BHP Billiton announced in mid-October they would no longer pursue plans for an iron ore production joint venture in the Pilbara in Western Australia. The mutually agreed decision came after it became apparent regulators were unalterably opposed to the proposed combination of assets.

“Both parties have recently been advised the proposal would not be approved in its current form by the European Commission, Australian Competition and Consumer Commission, Japan Fair Trade Commission, Korea Fair Trade Commission or the German Federal Cartel Office,” Rio Tinto’s statement said. “Some regulators have indicated they would require substantial remedies that would be unacceptable to both parties, including divestments, whereas others have indicated they would be likely to prohibit the transaction outright. The parties have mutually agreed that no break fee is payable.”

Plans for the joint venture were announced in June 2009, and definitive agreements were signed in early December 2009. Potential production and development synergies from the joint venture were estimated by the companies at more than $10 billion, including possible combining of current adjacent mines into single operations, ore blending opportunities, optimizing future expansion projects, more efficient use of rail and port infrastructure, and combining management, procurement and general overhead activities.

Rio Tinto chief executive Tom Albanese said, “The full value of the synergies on offer from a 50:50 joint venture was a prize well worth pursuing. Both companies have worked hard together over the last 16 months in a positive spirit to demonstrate its pro-competitive effects, and I am disappointed that ultimately the regulators did not agree with us.”

Rio Tinto Outlines Pilbara Expansion Plans: On October 20, two days after the termination of the proposed joint venture, Rio Tinto announced it will invest a further $3.1 billion to expand its iron ore infrastructure in the Pilbara, with a goal of increasing its annual infrastructure capacity to 283 million mt during 2013. The investment will support port and rail infrastructure works around Cape Lambert, including a two-berth wharf, a new stockyard, a car dumper, two stackers and reclaimers, rail marshalling yards and six new heavy-haul train units. Additional investments for mine and housing expansions will be required to lift mine production to 283 million mt/y, and the company anticipates these investments will be approved within the next 12 months.

Rio Tinto has also approved a final feasibility study into increasing its Pilbara iron ore production capacity to 333 million mt/y. Current production capacity is 220 million mt/y.

Rio Tinto Chief Executive, Iron Ore and Australia, Sam Walsh said, “Our plan is to boost our capacity by more than 50% to 333 million mt/y, with built-in potential to grow still further. This is the largest mining project ever undertaken in Australia and highlights the quality of our growth options.”

Rio Tinto has awarded major contracts and initiated procurement of long-lead items for what will ultimately be an additional 1.8-km jetty and four-berth wharf at Cape Lambert. The wharf and jetty will support a two-stage increase in mine production capacity, planned at 50 million mt/y for each stage. The new port facilities are also designed to enable possible future mine production growth beyond 333 million mt/y.

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