Diversified miner Rio Tinto has emerged as the partner of choice for joint ventures (JVs) with juniors, parastatals, midtiers and other majors, distinguishing iteslf in select areas, according to a recent study done by JV advisory group Water Street Partners, during which more than 70 industry insiders were interviewed.

In the mining and metals sector, as in the oil and gas sector, there are a limited number of high-quality, economically exploitable resources available at any given time and access to these resources often requires the formation of a JV, Water Street Partners director Gerard Baynham says.

“For instance, the resource may be located in a country that requires a JV with a domestic company as a prerequisite to obtaining a mining licence, or an exploration company may already own the mining rights, but needs to partner with a larger miner for capital, labour, know-how, equipment and materials, data and other contributions,” he explains.

Further, in some instances, the project is so large that even a major cannot afford to develop it alone because the cost or risk could compromise its corporate financial position.

The way forward in all these cases is setting up a JV, and being good at JVs provides a competitive advantage for Rio Tinto and other mining companies that can begin to distinguish themselves, Baynham adds.

During the process of interviewing and surveying industry executives, three dimensions emerge through which one could evaluate a partner of choice, he says.

The first dimension is business contributions, which Water Street Partners defines as the people and assets required to get the work done. Business contributions will include aspects such as technical know-how, materials and equipment, systems, processes, data, capital and brands, Baynham explains.

“The second dimension is deal-phase partnering attributes, which is defined as the negotiating and deal structuring skills to get to a ‘good yes’ that positions the venture for success or a ‘quick no’ that avoids a bad deal altogether.”

Examples of deal-phase partnering attributes will include an understanding of the counterparty’s goals and targets, focusing on joint gains and being creative in developing deal terms and options.

The final dimension is postdeal partnering attributes, which comprise governance and management skills, enabling the venture to deliver on its goals and targets, such as the swiftness and responsiveness of decision-making and the reasonableness of the shareholders’ data requests and requirements, as well as the dependability of the shareholders in fulfilling their commitments.

“Successful JVs tend to excel on all three dimensions,” he adds.

In Water Street Partners’ study, five multi- national mining majors – Rio Tinto, BHP Billiton, Vale, Xstrata and Anglo American – were analysed, each with a different approach.

BHP Billiton considers JVs a last resort, preferring to pursue wholly owned assets. The company is a top-tier, low-cost developer and operator and, in exchange for its superior business contributions, it generally asks its partners to cede control and accept only moderate visibility in the operations of the venture. This approach has been very successful for BHP Billiton and its partners willing to play the role of financial investor, Baynham states.

“In stark contrast to BHP Billiton, Anglo American is relatively decentralised and that appears to have impacted negatively on the perception of the mining major as a partner of choice, given its varied approach to JVs across commodities and geographies.

“In South Africa, Anglo American has proactively pursued a policy of increasing the involvement of black economic-empowerment companies in its JVs, encouraging them to own functions, take on operating responsibilities and provide services,” he says.

Generally, Anglo American tends to be open to JVs with independent management teams or codependent models in which each parent company provides several services for the venture. However, performance issues in some of its larger JVs have tarnished the reputation of the company as a partner of choice.

According to the Water Street Partners study, Xstrata excels on deal-phase partnering attributes.

“Many industry executives cited their willingness to consider exotic or creative deal structures as the key driver. For example, one dealmaker said Xstrata doesn’t do deals like the other majors, which simply allow potential partners to visit their data room and ask a few questions before defaulting to a traditional JV structure. Xstrata has shown a willingness to consider JVs in which economic flows are delinked from ownership and control and JVs that comprise a variety of partner types,” he explains.

Vale has historically used JVs to access customers in the steel value chain and to move into new commodities and geographies, Baynham says, adding that, of the five diversified majors analysed in the study, Vale is the newest to global JVs and is ranked lower because it is perhaps still moving up the learning curve.

However, Vale’s commitment to global JVs is questioned by some in the industry, as domestic politics may prompt Vale to enter into in-country investment, as opposed to international investment better suited for JVs.

Rio Tinto appears to display better qualities than both BHP Billiton and Xstrata. Like BHP Billiton, Rio Tinto is also a top-tier, low-cost developer and operator, but it is also willing to consider more creative deal terms. In Mongolia, it delinked economic flows from ownership and control. In Guinea, it ceded a substantial portion of its concession to government pressure, but maintained a long-term perspective and remained in-country. In China, it was willing to give up some control to form an exploration JV with the Aluminum Corporation of China to access demand and a potentially high-quality resource.

For mining companies to improve their rankings, Baynham suggests major mining companies assess their performance according to the three dimensions and ask their JV partners to do the same. After collecting the data, companies can then methodically analyse their strengths and weaknesses.