Rio Tinto and BHP Billiton have signed an agreement to establish an iron ore joint venture in Western Australia's Pilbara region.
In what is sure to be one of the biggest deals this year, the mining giants put out a joint statement this morning saying the deal ''is expected to unlock significant value from the companies' overlapping, world-class resources.''
Rio Tinto shares soared 11.8 per cent, or $7.90, to $74.80 when they resumed trading, and BHP shares shot up 8.5 per cent to $38.10.
The joint venture will encompass all current and future Western Australian iron ore assets and liabilities and will be owned 50-50 by BHP and Rio, the companies said.
BHP will pay Rio $US5.8 billion ($7.2 billion) to take its interest in the joint venture from 45 per cent to 50 per cent.
Rio said the joint venture with BHP would result in savings with a net present value of more than $US10 billion from the combined operations.
Under the deal, the companies will combine adjacent mines into single operations, look to reduce costs through shorter rail hauls and more efficient port capacity and combine the management, procurement and general overhead activities into a single entity.
Praise from markets
The deal offers BHP a key benefit it had hoped to achieve, while also getting around a lot of the international concerns''.
"In effect, they are joint-venturing on a production level and not on the sales level.''
Mr Gluskie said this means ore buyers will still deal with a multiple sellers, rather than a single entity, which had been one of the chief worries of competition regulators.
He said the joint venture could raise regulatory concerns for miners in the Pilbara, particularly Fortescue Metals.
However, considering all the other big questions the deal answers, Mr Gluskie said, "I don't think any concerns that people will have will be show-stoppers.''
Rio told state-owned Chinalco overnight that it was no longer interested in a $US19.5 billion tie-up of assets struck in February and which has come under pressure from shareholders to be dumped.
with BusinessDay's Chris Zappone
