BHP Billiton and Rio Tinto’s proposed iron ore joint venture has hit snags at the European Commission.
The regulator has announced an investigation of competition issues raised by the $116bn merger of the miners’ Pilbara, Australia operations.
The EC inquiry could mean the targeted completion date, the second half of this year, could be pushed out, or worse, the deal could be watered down or possibly abandoned should it be found to be anti-competitive.
The commission, considered the major obstacle to Australia’s biggest miners achieving a long-held desire to merge their iron ore operations in the Pilbara, has said it will not rush its decision to accommodate BHP and Rio’s desired timeline for the deal.
BHP and Rio expect to derive $10bn in synergies from the Pilbara tie-up.
The commission has said it will review the deal under Article 101, a relief for BHP and Rio because they avoid having to obtain approval under the more rigorous European Union merger regulation. That would have been required if the miners stuck to their original plan to include marketing operations in the joint venture. It also means the onus of proof that the deal is anti-competitive is on the Commission.
“The Commission will, in particular, examine the effects of the proposed joint venture on the worldwide market for iron ore transported by sea,” the EC said. The proposed partnership has been criticised by the World Steel Association and Eurofer trade bodies, which described the joint venture as a ‘cartel’.
Gordon Moffat, Eurofer director general said: “We remain convinced that the joint venture would be an unacceptable concentration which will significantly restrict competition in the seaborne iron ore market.”
The Japan Iron & Steel Federation said it viewed the establishment of the venture ‘as a move that would restrict competition, just as the failed acquisition of (Rio) by BHPB would have. Consequently, the Japanese steel industry opposes the JV.’