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Rio Tinto, BHP Billiton Sign Binding Agreements on Iron Ore Production JV

12/08/2009 - Rio Tinto and BHP Billiton have signed binding agreements on their proposed production joint venture covering both companies' entire Western Australian iron ore assets and liabilities, covering all aspects of how the JV will be operated and governed.

Rio Tinto and BHP Billiton in June signed an agreement of core principles to establish a production joint venture covering both companies' entire Western Australian iron ore assets and liabilities. The companies have now signed binding agreements on the proposed JV that cover all aspects of how the joint venture will operate and be governed.
 
The companies have also filed submissions with the European Commission and the Australian Competition and Consumer Commission related to the proposed production JV and expect to submit filings in other relevant jurisdictions soon. Rio Tinto and BHP Billiton expect to complete the JV in the second half of 2010, following regulatory review processes and shareholder approvals.
 
The aim of the production joint venture, to be owned 50:50 by Rio Tinto and BHP Billiton, is to produce more iron ore at lower cost. The companies believe the net present value of these production and development synergies will be in excess of US$10 billion (100% 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 to 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.
 
"Signing binding agreements brings us one step closer to unlocking the full production potential of our Pilbara iron ore assets and achieving substantial benefits for all our stakeholders,” said Tom Albanese, Chief Executive of Rio Tinto. “Completing the joint venture is a priority for Rio Tinto in 2010, and I look forward to realizing this vision and capturing the synergies for our shareholders."
 
"We are very pleased to now have formal and binding agreements in place to develop this important joint venture,” said BHP Billiton CEO Marius Kloppers. “With the history of both companies' attempts to join together these two world-class iron ore operations in WA at various times, this deal has effectively been more than a decade in the making. It is an important milestone towards delivering substantial additional benefits to both sets of shareholders, and to the shareholders of our respective joint venture partners in the Pilbara."
 
Rio Tinto and BHP Billiton announced in October that they would not proceed with any JV marketing activity. The production joint venture will deliver all its iron ore output to Rio Tinto and BHP Billiton to sell independently through their own marketing groups.