Charlotte Mathews
24 October 2008
Johannesburg — BHP Billiton could merge with Rio Tinto if it disposed of Rio Tinto's Coega aluminium smelter project within 12 months of a merger taking place, the Competition Commission said yesterday.
The Competition Tribunal will consider the commission's recommendation before taking a final decision.
This makes SA the third country to give a measure of approval to BHP Billiton's proposal, first announced last year, that Rio Tinto shareholders swap each of their shares for 3,4 BHP Billiton shares in a deal now worth about $63bn.
Rio Tinto management has rejected the offer, saying it undervalues the group.
Australian regulators gave the proposal the go-ahead this month. Earlier this year, US authorities gave it preliminary approval. The Canadian authorities and the European Commission are still considering it.
SA's Competition Commission said it had examined the various local markets from which the two companies earned significant revenue, including mineral sands, thermal coal and aluminium.
It concluded that the only area in which competition would be threatened was primary aluminium production.
"In this transaction we paid particular attention to the effect of this merger on local customers who use aluminium as an input in their business," the commission's head of mergers and acquisitions, Tembinkosi Bonakele, said.
"These beneficiating industries are important for economic growth and job creation in SA."
The commission said BHP Billiton was SA's only aluminium producer now through its smelters in Richards Bay.
Rio Tinto acquired the planned R20bn aluminium smelter in the Coega Industrial Development Zone in Port Elizabeth through its takeover of Alcan of Canada last year.
Earlier this year, it decided to put the project on hold for two or three years because of SA's electricity shortage.
But the commission said the "delay will be short-lived as there are plans to address this problem in the near future".
It said Rio's smelter would have presented competition to Billiton, which "enjoyed a near-monopoly for many years".
This new competition would have benefited downstream users of aluminium. Billiton's pricing of aluminium projects to downstream users was adjusted recently in response to the prospect of competition from Coega.
Asked if the disposal of the Coega project would be a blow to merger plans, BHP Billiton spokesman Illtud Harri said Billiton was awaiting the decision of the tribunal, and did not wish to pre-empt it. The group would continue to work with SA's regulators and those of other jurisdictions, including the European Union.
Rio Tinto's Southern African GM of communications, Jean Chawapiwa-Pama, also said Rio Tinto would wait for the tribunal's decision.
"This is part of the ongoing regulatory process, and clearly there are other jurisdictions where approvals need to be obtained. "Rio Tinto has maintained a neutral stance throughout the regulatory process, and has supplied information to competition authorities when requested."
As far as the Coega project was concerned, nothing had changed, she said.
"It is business as usual on the project today. We cannot speculate about what may or may not ultimately happen."
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