Rio Tinto CEO says iron ore merger process 'more challenging'

Anglo-Australian miners Rio Tinto and BHP Billiton are continuing talks with regulators over their proposed $116 billion Pilbara production joint venture but high global iron ore prices is making the process "more challenging," Rio Tinto CEO Tom Albanese said Thursday. "We've seen higher iron ore pricing as good for our business but it has been making the regulator picture quite challenging," Albanese said on CNBC Thursday when asked how the merger was progressing. "We said from the beginning, we respect the regulatory process. We are continuing our discussion with the regulators, but it is more challenging than it was a couple of months ago." Albanese was making his first public statement since details of an informal teleconference between Rio Tinto board members were leaked to an Australian newspaper on Monday, at which there was reportedly discussion about the best way to inform BHP Billiton of the company's intention to bow out of the joint venture agreement. Rio Tinto issued a three paragraph statement Tuesday in response to the report confirming a board meeting had been held at which the joint venture was among a "range of issues" discussed, but said the board had not made any final decisions relating to the proposal. It has also launched an internal probe into the source of the leak, the Sydney Morning Herald, which broke the story, reported Thursday.
The company, in its statement Tuesday, acknowledged that "recent communications" from regulators in Japan and South Korea and ongoing talks with the European Commission and the Australian Competition and Consumer Commission "indicate potential obstacles to achieving clearance for the joint venture." The ACCC in September announced it would delay handing down its decision on the proposed production joint venture "until after the parties have had further discussions with overseas regulators and provided additional submissions to the ACCC." It did not indicate when its decision would be handed down, saying only that its time line had been suspended at the request of the two companies. Rio Tinto would be liable for a $275.5 million break fee if it were to withdraw from the joint venture agreement before it expired on December 31. During Monday's teleconference, Rio Tinto director Mike Fitzpatrick reportedly raised the option of a "Plan B" if the joint venture proposal were to fall through, to harness some of the $10 billion in synergies that had been expected to flow from the proposal, the Australian newspaper reported Thursday. When asked on CNBC what would happen if the merger were to fall through, Albanese said: "Whatever happens with the regulatory picture, we will continue to focus on expanding our production in the Pilbara. More tons in the Pilbara under any circumstances makes the best sense for Rio Tinto shareholders." Rio Tinto and BHP Billiton signed a non-binding heads of agreement with the state government of Western Australia in June that included a provision to "promote efficiency and flexibility" for the two companies, such as the ability to share infrastructure and blend ore across their networks in the Pilbara region of the state. The two companies agreed as part of that HOA to increase the royalties they pay on iron ore, ending an historic concession they had received in return for infrastructure development in the region, and bringing their rates in line with those paid by other mining companies in the state.

Source: Platts