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Rio, BHP May Abort Planned Iron Ore Venture By End of Year, Merrill Says

BHP Billiton Ltd. and Rio Tinto Group, the world’s largest- and third-largest mining companies, may abort their proposed iron ore joint venture by the end of the year because of regulatory objections, Merrill Lynch said.

“Given the obstacles to the joint venture clearance it would appear that the likelihood of joint venture discussions ‘in good faith’ continuing past the drop dead date of Dec. 31 is increasingly remote,” analysts led by Peter O’Connor said in a report dated yesterday.

Rio and BHP, the world’s second- and third-largest producers of iron ore, agreed in June 2009 to combine mines, railroads and ports in Australia’s Pilbara region. BHP pledged to make a $5.8 billion equalization payment to London-based Rio as part of the accord that would cut costs for the companies by $10 billion. The venture, initially due to be completed by mid- 2010, has been delayed as regulators study the plan.

“The deal has faced headwinds for some time and the probability of completing was very low anyway,” O’Connor said. “Given improved financials, compared to when the deal was hatched in mid-2009, we see a solo Rio iron ore unit as an exceptionally viable alternative.”

Rio Tinto climbed 0.7 percent to A$79.54 at the 4:10 p.m. Sydney time close, the highest since April 16. Melbourne-based BHP gained 1 percent to A$40.95 on the Australian stock exchange.

Rio’s board “acknowledged recent communications from regulators that indicate potential obstacles to achieving clearance,” the company said in a statement after an Oct. 4 board meeting. Rio hasn’t made any final decisions regarding the tie-up with BHP in Western Australia, it said.

Regulatory Reviews

The Japan Fair Trade Commission and the Korea Fair Trade Commission have filed interim reports on the venture and Rio said it’s continuing talks with Australian and European regulators. The European Commission’s preliminary investigation into the plan is “coming to an end,” Amelia Torres, a spokeswoman for the regulator, said yesterday by telephone.

The two companies had agreed to a $276 million break fee when they signed the deal on June 5 last year. Rio was preparing to tell BHP yesterday it wants to exit the deal, the Age newspaper reported yesterday, citing people close to the board. It no longer wants to proceed because shareholders oppose the venture, Rio’s financial situation has improved and the partnership favors BHP, according to the report.

Merrill Lynch is a unit of Bank of America Corp.

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net

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