Rio Tinto is talking up the potential of a merger of its massive Pilbara iron ore operations with BHP Billiton's, driving speculation the combination could still be on the cards despite Rio's $US19.5 billion plans to bring in Chinalco.
Selling the Chinalco rescue deal to analysts, Rio chief executive Tom Albanese said synergies of an iron ore merger were never in question and that it had always been appealing.
"An iron ore joint venture with BHP is more workable than a corporate solution (such as a takeover)," Mr Albanese told analysts, according to a Deutsche Bank report.
While Mr Albanese made it clear a joint venture, or a takeover, would not be precluded by the deal with state-owned Chinalco, the talk is bound to fuel more speculation that an iron ore merger is a back-up plan if Treasurer Wayne Swan or shareholders block the rescue package.
It has also driven talk that Rio, which has said it will listen to alternative proposals to Chinalco's but not seek them out, may be open to any plans BHP has to spoil the China rescue package.
Rio's easier-expanded West Australian iron ore ports were at the centre of BHP's failed $135 billion bid last year.
The two were also in talks to merge iron ore operations in 1999, but those too fell through.
Due to Chinese concerns about iron ore consolidation, a combined Pilbara operation could become more difficult for BHP if Chinalco's bid to take an 18 per cent stake in Rio and a 15 per cent stake in the Hamersley iron ore operations are successful.
Mr Albanese said relations between the two big miners were cordial.
Earlier this week, he confirmed there had been some talks between the pair about asset sales since BHP walked away from hostile scrip bid in November.
Rio confirmed Mr Albanese's statements quoted by Deutsche, but stressed they were in answer to a specific question on an iron ore merger and were in the context of the Chinalco deal not precluding this, or a takeover.
BHP is barred from another tilt at Rio until November, unless the pair can agree on a merger at board level.
BHP would not comment on a potential iron ore tie-up, but it has been suggested the miner would be uneasy with the state-owned Chinalco having a stake in the assets, as opposed to just being on its register.
Rio, however, has been quick to dismiss any concerns China could influence pricing, or have access to sensitive information through Chinalco's two director appointees on the Rio board.
Mr Albanese has said this is not a concern because talk of price negotiations are fully contained within the iron ore negotiations.
There is also a conflict of interest committee, comprising the Rio chairman, chief executive officer and chief financial officer, that can exclude the Chinalco appointees from discussions if needed.
UBS analyst Glyn Lawcock, who was at the analysts' meeting, said there was no suggestion a deal was imminent and that any pairing up of the iron ore assets would still need to get around European regulators.
BHP pulled its bid partly because of the asset sales that would be required by the European Union in a depressed market, though the EU findings were not made public.
Merrill Lynch has said if the Chinalco deal falls through, one option for Rio would be to form an iron ore joint venture with BHP.
Separate marketing agreements to get around the EU.
"It would be interesting to see whether the EU accepts separately marketed products and joint sharing of infrastructure," Mr Lawcock said.
"But if it's just a joint sharing of infrastructure, you don't get as many synergies because you are still managing two big teams."
Mr Lawcock said while Rio's port infrastructure was definitely better, BHP had the advantage of bigger mining operations in more contained locations.
Mr Albanese was in Brisbane yesterday visiting corporate offices.
He plans to meet government representatives during his one-week stay in Australia to push the Chinalco deal.
BHP and Rio shares soared in early London trade last night, as copper rallied on optimism that Chinese metal consumption would increase and expectations that Premier Wen Jiabao would announce a new stimulus package.
Source: The Australian
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