BHP-Rio Deal Passes Muster

CANBERRA, Australia -- A proposed iron-ore joint venture between BHP Billiton and Rio Tinto won't lessen competition between the two companies to market the raw material, Australia's trade minister said. The proposed merger would see the Anglo-Australian miners, which dominate exports from the Pilbara region in Northwest Australia, share iron-ore-export facilities in Western Australia state in a bid to gain efficiencies and cut costs, Trade Minister Simon Crean said. "They will still operate as separate marketing arms, they will therefore be competitors and so there won't be any lessening of competition," Mr. Crean said. "When the details of the proposal emerge there will be acceptance of that." China has raised concerns about an Australian export monopoly emerging as a result of the proposal. The proposed merger of the BHP and Rio iron-ore operations came after the collapse in early June of a proposed US$19.5 billion deal between Rio and Aluminum Corp. of China, or Chinalco. Rio Chairman Jan du Plessis said that improving market conditions were behind the decision to terminate the tie-up with Chinalco, which had been designed to ease Rio's $38.7 billion debt burden. Mr. Crean described the collapse of the Rio-Chinalco deal as an "eye-opener" for China. "It's going to be an important learning curve for China" to understand the role that shareholders have in these considerations, he said. "It was the shareholders' reaction that fundamentally saw Rio go off and cut another set of arrangements." Beijing accepts that the Australian government was genuinely trying to work through the national-interest implications of the Chinalco proposal and that it wasn't any decision by the Australian government that saw the proposal fail, he said. OZ Minerals Ltd.'s $1.35 billion sale of assets to China Minmetals Non-Ferrous Metals Co. is a good example of how Australia can accommodate Chinese investment, including by a state-owned enterprise, he said. OZ Minerals said it completed the sale and repaid all of its bank-loan facilities Wednesday, adding that the total proceeds of the deal came in below the previously stated value of US$1.39 billion. Mr. Crean also said stalled talks between Australia and China about a free-trade agreement weren't connected in any way with Rio's proposed deal with Chinalco. Separately, Rio said its first-quarter net profit fell 45% to $1.6 billion from$2.94 billion a year earlier as lower prices hit earnings from the company's aluminum and copper divisions. Gross revenue for the three months to March 31 fell 28% year-to-year to US$9.5 billion. driven largely by a 41% drop in revenue from the aluminum division and a 56% drop in revenue from the copper-and-diamonds division.