Rio Tinto (RTP) and BHP Billiton (BHP) signed binding agreements on their proposed partnership that cover all aspects of how the joint venture will operate and be governed.
In June 2009, both the companies had signed an agreement of core principles to establish a production joint venture covering all the Western Australian iron ore assets belonging to both Rio and BHP. Pending regulatory and shareholders approvals, the companies expect to complete the joint-venture formation in the second half of 2010. The joint venture will be owned 50:50 by Rio and BHP.
The companies believe that this production joint venture will deliver substantial synergies resulting from combining the companies’ Western Australian iron ore operations, with the aim of producing more iron ore at lower cost. The synergies are expected to come from combining adjacent mines into single operations, reducing costs through shorter rail hauls and more efficient allocations of port capacity. This, in turn, should maximize product recovery and provide further operating efficiencies, optimizing future growth opportunities through the development of consolidated, larger and more capital efficient expansion projects, and combining the management, procurement and general overhead activities into a single entity.
The companies anticipate the total net present value of these unique production and development synergies to be in excess of $10 billion. The production joint venture will deliver all its iron ore output to Rio and BHP to sell independently. The companies announced that they would not proceed with any joint venture marketing activity.
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