Nov. 6 (Bloomberg) -- Rio Tinto Group still makes the “most sense” as a takeover target for the world’s largest mining company BHP Billiton Ltd., 11 months after BHP abandoned a bid, Citigroup said.

“Rio is still the deal that makes most sense for BHP Billiton given the synergies, asset quality and growth options,” Citigroup analysts led by London-based Johan U. Rode wrote yesterday in a note. “If BHP Billiton harbors any desire of such a move, then it would be unlikely to do a major M&A transaction that would constrain such a move.”

Australia’s BHP may make another offer for Rio should both companies fail to reach an agreement on a proposed iron ore joint venture, Citigroup said. Rio shareholders may reject the venture because the company doesn’t need the proceeds after selling shares in July and selling some assets, Citigroup said.

BHP dropped its Rio bid, which would have been the world’s largest mining takeover, in November amid the global financial crisis and plunging metal prices. Rio, which rejected the approach, subsequently proposed an investment from its largest investor, Aluminum Corp. of China, before scrapping that plan in June in favor of a rights offer and the iron ore venture.

As with the Rio bid, the “key ” regulatory approval will be from the European Commission, Citigroup said. Rio and BHP are the world’s second- and third-largest iron ore producers.

Reduced Debt

Rio’s share sale helped reduce the $38.9 billion of debt accumulated from its purchase of aluminum producer Alcan Inc. in 2007. Consequently, BHP may not need “substantial” debt facilities for another bid, Citigroup said. The Australian mining company previously had $50 billion of facilities in place to refinance the Alcan debt, Citigroup said.

Rio also made “significant” progress divesting assets since BHP scrapped the bid, Citigroup wrote.

Ruban Yogarajah, a BHP spokesman in London, declined to comment. London-based Rio spokesman Nick Cobban said the company doesn’t comment on market rumor or speculation.

To contact the reporter on this story: Firat Kayakiran in Istanbul at fkayakiran@bloomberg.net

Last Updated: November 6, 2009 08:54 EST