Partial victory

5 June 2009 By John Foley Follow @johnsfoley

The AngloAustralian miner deserves plaudits for choosing a $15bn rights issue over a pact with a Chinese stateowned firm. But to get a further $6bn, Rio has had to put its best iron ore assets into a joint venture with archrival BHP Billiton a venture it doesn t control.

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Rio Tinto said it had abandoned plans to raise capital through a deal with Chinalco, a Chinese stateowned metals group, and would instead opt for a $15bn rights issue and a joint venture with rival miner BHP Billiton.

Under the new plan, Rio and BHP would put their Western Australian ironore assets, focused on the Pilbara complex, into a new vehicle. BHP would then pay $5.8bn to buy 5% of the vehicle from Rio, giving both sides 50:50 control.

The chief executive of the joint venture would come from BHP at first, while the chairman of the nonexecutive council overseeing the venture would come from Rio, and be rotated between the two groups annually.

The joint venture would deliver synergies with a net present value of $10bn, Rio estimated. The JV would manage mining operations and exploration, but not the actual selling of iron ore, which would be handled by each side separately.

Shareholder approval would be required for the venture, along with approval from antitrust regulators and Australia's Foreign Investment Review Board (FIRB). Rio said it anticipated the venture being operational by mid2010.

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