The chief of the world’s biggest mining group, BHP Billiton, pushed his case for a mega-merger with rival Rio Tinto on Tuesday in the face of growing opposition from big Asian customers.
Rio Tinto, meanwhile, was considering offering joint ventures with BHP as an alternative to its bigger rival’s takeover offer, Britain’s Daily Telegraph said.
Without citing sources, the paper said in its online edition that Rio was preparing a preliminary defence plan — Project Manchester — against BHP’s proposed three-shares-for-one bid.
”We think this is a good proposal for shareholders and customers, but we have a lot of work to go through,” BHP CEO Marius Kloppers told Reuters on his way into talks with Posco, the world’s fourth-biggest steel maker, in the South Korean capital.
Kloppers has said a merger could mean $3,7-billion in annual savings after seven years through synergies in iron ore, coal and other activities.
”We think the overlap of the operations, the fact that we have a solution on how to put the companies together, and the benefits … is a very good proposition,” he said on Tuesday.
”We have a very compelling value proposition.”
BHP said on November 8 it had approached third-ranked miner Rio with an all-paper offer, now valued at around $122-billion. Rio was quick to reject the approach as too low.
A BHP/Rio tie-up would create the world’s biggest mining force, with control of huge amounts of iron ore, copper, coal, uranium, diamonds and other commodities for industrial use.
Industry officials have said a merged entity would control 40% of the world’s iron ore seaborne trade and 60% of Japan’s iron ore imports. Japanese steelmakers said on Monday they strongly oppose a merger.
That global clout could drive up costs for Asian steel firms as consolidation would reduce their bargaining power over long-term supply contracts of iron ore.
China’s steel industry, the biggest in the world, is concerned a merger would create ”an even bigger monopoly” in iron ore, the industry’s main feedstock, the China Metallurgical News quoted an unnamed senior official of the China Iron and Steel Association as saying.
China already takes half of all the iron ore that BHP mines. BHP, Rio and Brazil’s CVRD control about 70% of the iron ore that China buys.
Posco executive vice-president Kwon Young-tae said his firm, too, was concerned that a BHP/Rio merger would form a monopoly in raw materials. He said a merger was ”undesirable”.
Kloppers’ whirlwind tour of Japan, South Korea and China this week to explain his Rio offer has generated customer concern about the size and power of the proposed mining behemoth.
But analysts reckon it’s unlikely to put BHP off course.
”I don’t see these protests changing Kloppers’ mind. This is a well thought out move,” DJ Carmichael & Company mining analyst James Wilson said in Perth, Australia. ”BHP has made it very clear it wants to buy Rio Tinto.”
”BHP sees consolidation as making it easier to negotiate with customers in iron ore, where the steel mills have assumed a position of divide and conquer, which they would not have if BHP and Rio become one,” Wilson said.
Kloppers visits Shanghai and Beijing from Wednesday to Friday. – Reuters