The proposed $116bn joint venture between Rio Tinto and BHP Billiton to mine iron ore in Western Australia appeared to be close to collapse last night after minutes of a Rio board meeting, suggesting that the company wanted to back out of the deal, were leaked to an Australian newspaper.
In a statement, Rio stressed that it had "not made any final decisions about possible outcomes or next steps" but acknowledged that there had been "recent communications from regulators that indicate potential obstacles to achieving clearance for the joint venture".
The Sydney Morning Herald quoted the Rio chairman, Jan du Plessis, as telling his fellow directors that he did not think BHP Billiton would object to Rio calling off the deal. "We should simply work on the basis that both parties worked well and in good faith to make this thing work and both parties agreed, simultaneously, it wasn't possible," he was reported as saying.
BHP Billiton declined to comment last night. But a source close to Rio Tinto said the project was now "very unlikely" to go ahead, and added that the iron-ore market had changed significantly since the joint venture was agreed. Annual pricing of iron ore has been replaced, while Rio has also succeeded in cutting its once burgeoning debt pile. The British-Australian company has ambitious expansion plans of its own, while BHP has been concentrating on its $38.5bn takeover bid for Canada's Potash Corporation of Saskatchewan.
"The major reasons for Rio's decision appear to be its improving financial fortunes, pressure from shareholders and the conclusion that the deal favoured BHP," sources told the Australian newspaper.
A deal between the two mining giants has seemed increasingly unlikely in recent months. It would need the approval of numerous regulators, including the European Commission, which is expected to have reservations on competition grounds.
It is understood that the two companies will continue to work on the joint project, and view the information gathered from the various regulators as important for future operations.
BHP failed in its bid to buy Rio two years ago after regulators baulked at the deal.