BHP Billiton and Rio Tinto is officially off

Thanks Tom, thanks Marius, but sorry. The iron ore JV in the Pilbara between the two mining majors, BHP Billiton and Rio Tinto is officially off. Reason is the one that we thought might always be the toughest to overcome, the competitions and anti-trust hurdles to overcome were just too much. The idea was simple, the infrastructure would be shared and there would be cost savings of 10 billion US Dollars. The idea was that BHP Billiton would pay Rio Tinto 5.8 billion US Dollars to measure up to what would then be a 50/50 iron ore venture in the Pilbara, Western Australia. Port and railroad infrastructure would be shared and assets pooled.



At the time of the release (early June 2009) Rio chairman, Jan du Plessis (who is no doubt thrilled that Province made the final) said: "The joint venture will establish an unrivalled iron ore business with world class assets and infrastructure. We believe it represents great value for shareholders and will create a business combination able to serve growing international markets with unparalleled efficiency."



I guess that was what spooked steel makers, a producer of their major input of this size. Perhaps a little bit of inefficiency is a good thing from multiple suppliers. The outcome I think is obvious, negative for BHP Billiton and positive for Rio Tinto, the Sydney Morning (all day) Herald website reports: Rio, BHP scrap $117b joint venture. This is the second time that I guess Rio Tinto has been able to escape what looks like a worse outcome for their shareholders, and perhaps the second time that Tom "hands" Albanese has been able to escape what could have potentially been a bad outcome for him. Not so thinks the WSJ: Three Times Unlucky For Rio




I do think that this does not reflect too well on the current BHP Billiton management, although operationally they have done a good job. From the official BHP Billiton release this morning, BHP Billiton and Rio Tinto Terminate the Iron Ore Production Joint Venture: "Since the agreement was signed it has become increasingly apparent that regulatory approvals of the joint venture are unlikely to be achieved. Consequently, BHP Billiton and Rio Tinto have reluctantly agreed to dissolve the proposed joint venture."


I guess this was hardly a secret, or a surprise, this has been baked in the cake for some time now, the fact that the JV was poised to be called off. BHP Billiton say that they will continue to invest in their Western Australian iron ore business, there are several expansion projects on the go. In fact Rapid Growth Project 5, as per the BHP Billiton website: "...will increase installed capacity across our Western Australia Iron Ore operations by 50 million tonnes to 205 million tonnes per annum during Calendar year 2011."



What it does do, however, is that the focus can move squarely onto the Potash Corp. deal, which the fellows over at BHP Billiton are moving faster on. Or seemingly to me, you learn from your mistakes. As expected, well at least from here, we always thought that only one party could bite a deal this size: Sinochem retreats from rival Potash bid. And there are no other bidders. So. I would expect in the coming days the Potash price to maybe trend a little lower. Or not, perhaps they will just wait for a BHP Billiton 150 bucks a share final offer.