Source: Reuters                    Date: 21 October, 2010

BHP Billiton and Rio Tinto ditched plans to form the world's biggest iron-ore joint venture, in a victory for steelmakers that could prompt both miners to step up competing expansions. The announcement marked the second failed attempt in three years by BHP chief executive Marius Kloppers to buy into Rio's superior iron ore assets, and strengthens the hand of steel mills which feared the pair would gain too much pricing control.

Monday's long-expected news also left BHP focusing squarely on a USD39 -billion hostile bid for fertilizer group Potash Corp, no longer distracted by the USD116 billion marriage of the two miners' mammoth Australian iron ore operations. "The failure of the joint venture will be slightly more positive for Rio than BHP, but it's important to remember it's actually a negative for both companies," said an analyst.

A joint venture between Rio and BHP, the world's second and third largest iron ore miners, would have eclipsed Brazil's Vale, the world's largest supplier, and would have reaped more than USD10 billion in savings from combining rail and port operations.

BHP and Rio Tinto had a fall-back option to share some iron ore infrastructure in the event the full joint venture failed, but this "Plan B" is also in doubt, given the opposition that has emerged among competition regulators to the venture. Analysts had estimated Plan B could yield at least half of the savings envisaged in the joint venture plan. Now, BHP and Rio Tinto will have to review regulators' objections to their joint venture plan to gauge whether even a more modest collaboration would be allowed, a source close to the process said.

The failure of the deal was widely expected after Rio Tinto and BHP were recently advised that their proposal would not be approved by competition watchdogs in the European Union, Australian, Japan, South Korea and Germany.Rio is in a much better position now to survive without the joint venture than when the deal was announced in 2009, when it was desperately slashing USD40 billion in debt.