/ 23 October 2008

SA conditionally approves BHP takeover of Rio Tinto

The Competition Commission has recommended that the Competition Tribunal approve BHP Billiton's proposed merger with Rio Tinto -- with conditions.

South Africa’s Competition Commission on Thursday said it has recommended that the Competition Tribunal approve BHP Billiton’s proposed merger with Rio Tinto, but that approval should be subject to conditions.

BHP Billiton and Rio Tinto are major global mining houses whose activities largely overlap in the supply and mining of gold, copper, aluminium, mineral sands, uranium, thermal coal, metallurgical coal, diamonds, iron ore, molybdenum, sulphuric acid, nickel, cobalt and silver.

In South Africa, the parties have a significant presence or derive revenue from mineral sands, thermal coal and aluminium.

While the commission found no major competition concerns in other markets, it said that the merger would result in the prevention of competition in the primary aluminium market in South Africa.

It also found that the merger would have a negative impact on downstream industries that beneficiate aluminium.

The commission suggested that the Competition Tribunal, which has the final say on the matter, approve the merger subject to a single condition — that BHP Billiton divest of any interest it may gain through its merger with Rio Tinto in the Coega aluminium smelter project within 12 months of the implementation of the proposed merger.

BHP Billiton is currently the only producer of primary aluminium in South Africa, through its smelters in Richards Bay, while Rio Tinto is at an advanced stage of planning regarding the development of an aluminium smelter in the Coega Industrial Development Zone in Port Elizabeth.

The Competition Commission said that had it not been for the current electricity shortage in South Africa, the construction of the smelter would have been under way.

The delay is expected to be short-lived as there are plans to address this problem in the near future.

“In its investigation, the commission established that the Rio Tinto smelter would have brought about competition to BHP Billiton in South Africa, which has enjoyed a near-monopoly for many years,” the commission said.

This would, in addition, enhance the benefits to firms that use the metal in South Africa, it added.

“BHP Billiton has adopted a pricing regime that has reduced the benefits to these downstream firms. This pricing regime has, however, been recently discarded, as a response to the prospect of a new entry in Coega,” the commission pointed out. — I-Net Bridge