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BRISBANE (Reuters) –
Global miner BHP Billiton (BHP.AX) dismissed talk on Thursday that rival Rio Tinto (RIO.AX) was baulking at a proposed $116 billion joint venture in iron ore, insisting the two were close to a binding agreement.
Rio Tinto (RIO.L) and BHP (BLT.L), the world's second- and third-largest iron ore producers, plan to combine their Australian iron ore operations, aiming to save around $10 billion a year on capital and production costs.
Marius Kloppers, chief executive of BHP, which with Rio Tinto, plans to ship more than 300 million of tonnes of iron ore to steel mills globally this year, expressed "surprise" at the continuing strength of China's steelmaking sector in the face of tough international conditions.
"One element that continues to surprise us... is the resilience of the Chinese steel sector," Kloppers told shareholders at BHP's annual general meeting. "Outside of China, we saw steel capacity usage fall to 50 percent in the three major steel markets of the U.S., Europe and Japan."
Responding to media reports that Rio was getting cold feet over the deal, struck in June when debt-laden Rio Tinto's share price was 25 percent lower, BHP Chairman Don Argus denied that commitment to the deal had been weakened.
"That's not the case within both parties. And that's certainly not the case from a majority of shareholders. They want to see this go through," he told the annual meeting.
BHP and Rio expect to have the main submissions on the joint venture to regulators by the end of this year, Kloppers said, adding the main terms of the deal should be hammered out shortly.
"By the end of this year we would like to be in the position where the definitive agreements have been concluded, where required submissions to regulators have been done," he said, adding talks between the two firms had deepened their relationship.
Investors see the European Commission as the biggest hurdle to the venture, as the EC last year flagged concerns about control over the iron ore market when BHP proposed taking over Rio Tinto, a deal BHP scrapped a year ago.
Kloppers said the joint venture was designed with full knowledge of what the EC's concerns were last year.
"I'm confident we've done a very good job of constructing the jv in a manner that is compatible with the knowledge that we've got," Kloppers told reporters after the AGM.
Analysts forecast a resumption of hefty year-on-year iron ore price hikes for steelmills next year after a one-third contraction this year, mostly due to China's increasing appetite for imported ore from Australia and Brazil to replace low-grade domestic ore.
World Steel Association figures show China produced close to half the world's steel in August, while Europe and North America accounted for around 7 percent each.
Kloppers also said BHP was close to deciding whether to sell or restart its huge Ravensthorpe nickel mine and processing operation in west Australia which, at peak capacity, produces about 55,000 tonnes of nickel a year, around 5 percent of global output of the metal, used to make stainless steel.
The company closed Ravensthorpe in January after nickel prices slumped, but even as these have rallied BHP still does not see this as a core growth asset, and has received several bids.
Kloppers played down the likelihood that BHP might soon resume a share buyback, which it put on hold two years ago.
"I think our first priority continues to be to deploy capital in our business, and we would quite like to continue to do that," he told reporters.
(Additional reporting by James Regan; Editing by Mark Bendeich and Ian Geoghegan)
