TORONTO (miningweekly.com) – Diversified miners BHP Billiton and Rio Tinto have signed a non-binding agreement to establish a production joint venture covering both group's Western Australian iron ore assets.

Separately, Rio said it would raise about $15,2-billion in a highly discounted rights issue to reduce its heavy debt load..

The joint venture will encompass all current and future Western Australian iron ore assets and liabilities and will be owned 50:50 by BHP Billiton and Rio Tinto.

BHP will pay Rio $5,8-billion to take its interest in the joint venture to 50%, the companies said in a joint statement.

The joint venture will involve combining adjacent mines into single operations; reducing costs through shorter rail hauls and more efficient allocations of port capacity, blending opportunities which will maximise product recovery and provide further operating efficiencies; optimising 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 said they expect to achieve more than $10-billion in synergies on a 100% basis.

The rights issues will enable Rio Tinto to meet its Alcan facility debt repayment obligations fully in 2009 and substantially in 2010, the group said.

Last year, Rio Tinto rejected a hostile takeover bid by BHP Billiton.

To subscribe to Mining Weekly's print magazine email subscriptions@creamermedia.co.za or buy now.