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Australia Delays Ruling on BHP, Rio Iron Ore Venture

An Australian regulator has delayed ruling on BHP Billiton Ltd. and Rio Tinto Group’s planned iron ore joint venture after the companies sought more time to make submissions and hold talks with overseas watchdogs.

The review timeline has been suspended since July at the request of the companies, the Australian Competition and Consumer Commission said today in a statement.

Rio and BHP, the second and third-largest exporters of iron ore, are aiming to save at least $10 billion in costs by combining their mines, rails and ports in the remote Pilbara region of Australia. There’s a less than 50 percent chance that the deal will proceed, Deutsche Bank AG said last month.

“It would be a big job getting approval from everyone,” said James Wilson, a resources analyst at DJ Carmichael & Co. in Perth. “If one regulator says no, how can it go ahead? They are also getting along with their expansions too and if they get it through it’s a bonus.”

BHP gained 1 percent to A$39.44 at the 4:10 p.m. Sydney time close on the Australian stock exchange. Rio rose 0.2 percent. The deal needs regulatory and shareholder approval and is opposed by steelmakers in Europe and Asia.

The venture is worth striving for because of the synergies and approvals will take time, Rio Tinto Group Chief Executive Officer Tom Albanese said Aug. 20. Germany’s Federal Cartel Office in June extended the deadline for its review of the proposal to Oct. 31.

Monopoly Concern

“If they didn’t see value in it they wouldn’t be pursuing it,” said Wilson, adding the deal may eventually proceed. “Steelmakers are worried about a monopoly.”

The deal won’t proceed because competition regulators are yet to rule on the plan, the Sydney Morning Herald reported on Aug. 19, citing an unidentified mining executive involved in the discussions. Recent moves by both iron ore producers to impose a new quarterly pricing system on Asian customers have done little to convince regulators in China, Europe and Australia that the venture wouldn’t influence prices, the Herald said.

Steelmakers in Japan, the world’s second-largest producer, opposed the joint venture. The venture would limit competition in the industry, the Japan Iron & Steel Federation said.

The venture should be blocked by regulators, the World Steel Association said when the deal was announced. BHP and Rio said they would continue selling their iron ore independently.

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