In a joint release issued on Saturday, December 5, mining giants BHP Billiton and Rio Tinto announced the signing of a binding agreement on the core of principles to establish a production joint venture covering the entirety of both companies' Western Australian iron ore assets. With this joint venture which will encompass all current and future Western Australian iron ore assets and liabilities and in which each company will have a 50 percent stake, both companies seek lower cost iron ore production. However, the marketing of the production will be executed separately.
BHP Billiton and Rio Tinto believe the net present value of these unique production and development synergies will be in excess of US$10 billion (100 percent basis). These synergies are anticipated to come from:
• Combining adjacent mines into single operations;
• Reducing costs through shorter rail hauls and more efficient allocations of port capacity;
• Blending opportunities which will maximize product recovery and provide further operating efficiencies;
• Optimizing future growth opportunities through the development of consolidated, larger and more capital efficient expansion projects;
• Combining the management, procurement and general overhead activities into a single entity.
Both parties initially signed their nonbinding core principles agreement back on June 5, 2009, after Rio Tinto scrapped a deal with China's Chinalco following Australian opposition to a foreign state-backed enterprise owning a strategic stake in the country's biggest natural resource assets.
The companies have also filed submissions with the European Commission and the Australian Competition and Consumer Commission in relation to the proposed production joint venture. The two companies revised the agreement in October, to keep their marketing separate in order to comply with antitrust rules. The companies anticipate completion of the JV in the second half of calendar year 2010.