Rio Tinto and BHP Billiton announce West Australian iron ore production joint venture

Rio Tinto and BHP Billiton announce West Australian iron ore production joint venture

Rio Tinto and BHP Billiton announce West Australian iron ore production joint venture

Rio Tinto and BHP Billiton today signed a non-binding agreement to establish a production joint venture covering the entirety of both companies’ Western Australian iron ore assets. 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.

The joint venture is expected to unlock significant value from the companies’ overlapping, world-class resources. Both companies believe the net present value of these unique production and development synergies will be in excess of US$10 billion (100 per cent basis). These substantial synergies are anticipated to come from:

. 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;
. Combining the management, procurement and general overhead activities into a single entity.

The joint venture will operate as a cost centre and deliver iron ore, in equal volumes, to ships designated by BHP Billiton and Rio Tinto to sell independently through their own marketing groups. In order to equalise the contribution value of the two companies, BHP Billiton will pay Rio Tinto US$5.8 billion for equity type interests at financial close to take its interest in the joint venture from 45 per cent to 50 per cent.

Senior management of the entity will be determined jointly on the basis of the ‘best person for the job’ with broadly equal participation from Rio Tinto and BHP Billiton. The initial Chairman of the non-executive owners’ council will be Sam Walsh, currently Rio Tinto Chief Executive Iron Ore, and the initial CEO of the production joint venture will be BHP Billiton Iron Ore President, Ian Ashby. Future CEOs will be appointed by mutual consent.

Commenting on the joint venture, Rio Tinto Chairman Jan du Plessis said, “The joint venture will establish an unrivalled iron ore business with world class assets and infrastructure. We believe it represents great value for shareholders and will create a business combination able to serve growing international markets with unparalleled efficiency.”

BHP Billiton Chairman, Don Argus, said, “I am delighted that we are able to announce a transaction that can deliver significant real and quantifiable synergies to our shareholders. The combination of these two asset portfolios will unlock the scale benefits inherent in this world class resource basin.”

BHP Billiton CEO Marius Kloppers said, “The synergies in this combination are so substantial that both companies have been investigating ways to combine these operations for more than a decade. I am delighted that we have found a solution that works for both companies. This joint venture brings together world-class iron ore resources, infrastructure and people, unlocks large synergies and is an outstanding outcome for all stakeholders.”

Tom Albanese, Chief Executive of Rio Tinto, said, “We have long recognised the natural fit of our two iron ore businesses and the industrial logic for bringing them together in order to unlock substantial synergies. We are very pleased that we have been able to realise this vision which offers value to both companies.”

Technology and research and development activity will also be shared. The agreement excludes HIsmelt, any secondary processing facilities, and operations and future business development outside Western Australia.

Rio Tinto and BHP Billiton will now move to signing definitive and binding transaction documentation as soon as practicable based on the agreed principles set out in the attached agreement that has been signed today. Pre-conditions for formation of the joint venture include receipt of regulatory and relevant governmental clearances and approval from the shareholders of both Rio Tinto and BHP Billiton.

Rio Tinto and BHP Billiton have also agreed to certain exclusivity and other provisions that commit both parties to negotiate binding agreements governing the formation of the joint venture, including a mutual break fee of US$275.5 million payable in the event that either party does not fulfil certain commitments to complete those documents. The break fee would also be payable in the event that either party:

a) announces that it does not intend to proceed with the transaction; or
b) fails to recommend the transaction to its shareholders or take the steps necessary to obtain the approval of its shareholders; or
c) breaches the agreed exclusivity provisions.

The attached agreement will terminate if binding agreements are not executed within six months of the date of this announcement or the conditions precedent are not satisfied by 31 December 2010. Formation of the joint venture is expected to be completed around mid-2010.

Goldman Sachs and Gresham Partners acted as financial advisers to BHP Billiton on this transaction. Morgan Stanley acted as financial adviser to Rio Tinto on this transaction.

About Rio Tinto

Rio Tinto is a leading international mining group headquartered in the UK, combining Rio Tinto plc, a London and NYSE listed company, and Rio Tinto Limited, which is listed on the Australian Securities Exchange.

Rio Tinto’s business is finding, mining, and processing mineral resources. Major products are aluminium, copper, diamonds, energy (coal and uranium), gold, industrial minerals (borax, titanium dioxide, salt, talc) and iron ore. Activities span the world but are strongly represented in Australia and North America with significant businesses in South America, Asia, Europe and southern Africa.

Forward looking statements

This announcement includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this announcement, including, without limitation, those regarding Rio Tinto and BHP Billiton’s respective financial positions, business strategies, plans and objectives of management for future operations (including development plans and objectives relating to the products, production forecasts and reserve and resource positions of each of Rio Tinto and BHP Billiton) and synergies arising out of the proposed joint venture are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Rio Tinto or BHP Billiton, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Such forward-looking statements are based on numerous assumptions regarding Rio Tinto and BHP Billiton’s respective present and future business strategies and the environment in which Rio Tinto and BHP Billiton, respectively, will operate in the future. The important factors that could cause Rio Tinto and BHP Billiton’s actual results, performance or achievements to differ materially from those in the forward-looking statements include, among others, levels of actual production during any period, levels of demand and market prices, the ability to produce and transport products profitably, the impact of foreign currency exchange rates on market prices and operating costs, operational problems, political uncertainty and economic conditions in relevant areas of the world, the actions of competitors, activities by governmental authorities such as changes in taxation or regulation and such other risk factors identified in the most recent Annual Report on Form 20-F filed with the United States Securities and Exchange Commission (the “SEC”) or Form 6-Ks furnished to the SEC by each of Rio Tinto and BHP Billiton. Forward-looking statements should, therefore, be construed in light of such risk factors and undue reliance should not be placed on forward-looking statements. These forward-looking statements speak only as of the date of this announcement. Each of Rio Tinto and BHP Billiton expressly disclaim any obligation or undertaking (except as required by applicable law, the UK Listing Rules, the Disclosure and Transparency Rules of the Financial Services Authority and the Listing Rules of the Australian Securities Exchange) to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in Rio Tinto and BHP Billiton’s respective expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Contacts:

Rio Tinto

Media Relations London
Christina Mills
Office: +44 (0) 20 7781 1154
Mobile: +44 (0) 7825 275 605

Nick Cobban
Office: +44 (0) 20 7781 1138
Mobile: +44 (0) 7920 041 003

Media Relations, US
Tony Shaffer
Office: +1 202 393 0266
Mobile: +1 202 256 3667

Media Relations, Canada
Stefano Bertolli
Office +1 (0) 514 848 8151
Mobile +1 (0) 514 915 1800

Media Relations, Australia
Ian Head
Office: +61 (0) 3 9283 3620
Mobile: +61 (0) 408 360 101

Amanda Buckley
Office: +61 (0) 3 9283 3627
Mobile: +61 (0) 419 801 349

Investor Relations, London
Nigel Jones
Office: +44 (0) 20 7781 2049
Mobile: +44 (0) 7917 227 365

David Ovington
Office: +44 (0) 20 7781 2051
Mobile: +44 (0) 7920 010 978

Investor Relations, North America
Jason Combes
Office: +1 (0) 801 204 2919
Mobile: +1 (0) 801 558 2645

Investor Relations, Australia
Dave Skinner
Office: +61 (0) 3 9283 3628
Mobile: +61 (0) 408 335 309

Simon Ellinor
Office +61 (0) 7 3361 4365
Mobile +61 (0) 439 102 811

BHP Billiton Media & Investor Relations

Australia
Samantha Evans, Media Relations
Tel: +61 3 9609 2898
Mobile: +61 400 693 915

Peter Ogden, Media Relations
Tel: +61 3 9609 2812
Mobile: +61 428 599 190

Kelly Quirke, Media Relations
Tel: +61 3 9609 2896
Mobile: +61 429 966 312

Leng Lau, Investor Relations
Tel: +61 3 9609 4202
Mobile: +61 403 533 706

United Kingdom
Andre Liebenberg, Investor Relations
Tel: +44 20 7802 4131
Mobile: +44 7920 236 974

Illtud Harri, Media Relations
Tel: +44 20 7802 4195
Mobile: +44 7920 237 246

United States
Scott Espenshade, Investor Relations
Tel: +1 713 599 6431
Mobile: +1 713 208 8565

Ruban Yogarajah, Media Relations
Tel: US +1 713 966 2907
or UK +44 20 7802 4033
Mobile: UK +44 7827 082 022

South Africa
Bronwyn Wilkinson, Investor Relations
Tel: +44 20 7802 4015
Mobile: +44 7500 785 892

Goldman Sachs International, which is regulated in the United Kingdom by the Financial Services Authority, and its affiliate, Goldman Sachs JBWere, are acting exclusively for BHP Billiton Limited and BHP Billiton Plc and no one else in connection with the transaction described herein and will not be responsible to anyone other than BHP Billiton Limited and BHP Billiton Plc for providing the protections afforded to clients of any of Goldman Sachs International or any of its affiliates (including Goldman Sachs JBWere) nor for providing advice in connection with the transaction or any other matters referred to herein.

Gresham Partners, which holds an Australian Financial Services Licence under the Australian Corporations Act, is acting exclusively for BHP Billiton Limited and BHP Billiton Plc and no one else in connection with the transaction described herein and will not be responsible to anyone other than BHP Billiton Limited and BHP Billiton Plc for providing the protections afforded to clients of Gresham Partners nor for providing advice in connection with the transaction or any other matters referred to herein.

Morgan Stanley & Co. Limited is acting as financial adviser to Rio Tinto plc and Rio Tinto Limited and no one else in connection with the transaction described herein and will not be responsible to anyone other than Rio Tinto plc and Rio Tinto Limited for providing the protections afforded to the clients of Morgan Stanley nor for providing advice in relation to the transaction, the contents of this announcement or any other matter referred to herein.

Further information:

If you have been forwarded this email, you may wish to click here to signup for our media releases directly.

Email: questions@riotinto.com

Website: www.riotinto.com

High resolution photographs available at: www.newscast.co.uk