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November 27, 2009

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BHP says joint venture is close

GLOBAL miner BHP Billiton yesterday dismissed talks that rival Rio Tinto was baulking at a proposed US$116 billion joint venture in iron ore, insisting the two were close to a binding agreement.

Rio Tinto and BHP, the world's second and third-largest iron ore producers, plan to combine their Australian iron ore operations, aiming to save around US$10 billion a year on capital and production costs.

Marius Kloppers, chief executive of BHP, which with Rio Tinto, plans to ship more than 300 million of tons of iron ore to steel mills globally this year, expressed "surprise" at the continuing strength of China's steel-making sector in the face of tough international conditions.

"One element that continues to surprise us is the resilience of the Chinese steel sector," Kloppers told shareholders at BHP's annual general meeting. "Outside of China, we saw steel capacity usage fall to 50 percent in the three major steel markets of the United States, Europe and Japan."

Responding to media reports that Rio was getting cold feet over the deal, struck in June when debt-laden Rio Tinto's share price was 25 percent lower, BHP Chairman Don Argus denied that commitment to the deal had been weakened.

"That's not the case within both parties. And that's certainly not the case from a majority of shareholders. They want to see this go through," he said.

BHP and Rio expect to have the main submissions on the joint venture to regulators by year end, Kloppers said.

Analysts forecast a resumption of hefty year-on-year iron ore price hikes for steel mills next year after a one-third contraction this year, mostly due to China's increasing appetite for imported ore.


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