 JOHANNESBURG (miningweekly.com) – Diversified miner BHP Billiton remained confident that its Western Australia iron-ore joint venture (JV) with Rio Tinto would go ahead, despite opposition from steelmakers and speculation that Rio Tinto was considering pulling out of the deal.
Outgoing BHP chairperson Don Argus maintained during the group’s annual general meeting on Thursday that both companies remained committed to the deal, adding that many shareholders had also expressed support for the JV and that they would have an opportunity to vote on the transaction next year.
BHP and Rio, in June, signed a nonbinding agreement to establish the JV, which would encompass all current and future Western Australian iron-ore assets and liabilities, with BHP expected to pay Rio $5,8-billion to take its interest in the JV to 50%.
The deal was expected to result in more than $10-billion in synergies.
The companies were expected to meet a December 5 deadline for reaching a binding agreement, after which the main submissions on the JV would go to the regulators by the end of the year, BHP CEO Marius Kloppers said.
Steelmakers have been heavily opposed to the deal, saying that the combined BHP/Rio entity and Brazil’s Vale would control 70% of the world’s seaborne iron-ore exports.
The two diversified miners have, subsequently, decided not to jointly market the Western Australia iron-ore, as previously planned.
“The Western Australia iron-ore production JV with Rio Tinto is an example of our focused pursuit of growth in production capacity. We expect the proposed joint venture to unlock significant value from the companies' overlapping, world-class iron ore resources,” Argus noted during the AGM.
Meanwhile, he pointed out that BHP was better positioned than most to benefit from an economic recovery, given its Tier One assets and its strong balance sheet.
The group had generated its highest ever net operating cash flow of $18,9-billion in the 2009 financial year, significantly higher than the $3,9-billion achieved in 2002.
This record cash flow has enabled BHP to continue to invest $11-billion in capital and exploration projects during the financial year, when a number of its competitors had cut back on investments.
Kloppers reaffirmed BHP’s commitment to investing a further $10-billion in capital and exploration expenditure during the 2010 financial year.
Its pipeline of projects in execution presently amounted to about $14-billion, he added.
Both Argus and Kloppers expected the economic recovery to be slow, but were confident of the long-term demand outlook for its products.
“We continue to believe there will be strong long-term demand for our products from the Asian region. The real driver of China's growth is industrialisation and urbanisation of its cities. The scale of construction required to support the mass migration going on in India and China from rural to city areas is almost beyond comprehension. But as nations industrialise and urbanise, the commodities we produce are critical to their growth,” he stated.
Kloppers added that the rebound in commodity prices and the velocity of the recovery in China in the past six months had been “surprising”.
“We have no reason to change our long-held view that Chinese growth will continue and will continue to be resources intensive. We will maintain our focus on long-term growth in production capacity to meet these needs,” he said.
Further, he noted that steel capacity usage rate in the US, Europe and Japan, where capacity usage rates fell to 50% during the downturn, were improving, but added that this was progressing slowly.
REDUCING ITS CARBON FOOTPRINT
Meanwhile, Argus pointed out that BHP was committed to reducing its carbon footprint, saying the group continues to challenge itself to find ways of cutting down on its carbon emissions.
It was setting itself ambitious energy and greenhouse gas (GHG) efficiency targets for its operations, working towards a meaningful reduction in its energy use and GHG emissions and supporting industry research and development of low-emission technologies, such as carbon capture and storage, he highlighted.
“We all know there is no silver bullet to address the issue. Climate change is a global challenge in which every country needs to be involved and developed countries do need to take the lead. But no country can do this on its own and no country can do this without the active understanding and involvement of its citizens,” stated Argus.
Argus will retire as chairperson in early 2010 and will be succeeded by Jac Nasser, the former CEO and president of the Ford Motor Company.
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