Thursday, February 07, 2008

Mining giant bid ignites concerns over Iron Ore around the World

The world's biggest miner wants to be even bigger.

Not content with annual revenue equal to the size of Vietnam's economy, Anglo-Australian mining giant BHP Billiton has formalised a bid to buy close rival Rio Tinto.

The $147bn (£74.8bn) offer sets the stage for the world's second-largest takeover.

The bold move is raising hackles among the many countries that depend on the raw materials the mining firms provide, especially China.

Together, the two companies would control a third of world's supply of iron ore, the chief raw material for steel, and around 10% of copper and aluminium supplies.

It would also dominate the production of uranium, which fuels nuclear power plants.

"Having control over a greater percentage of the worldwide supply of iron ore, and other commodities, gives them a much stronger negotiating position," says Charles Kernot, metals and mining analyst at Seymour Pierce.

China potentially has the most to lose should the proposed merger go through.

The two firms supply about 40% of China's iron ore imports and are believed to be aiming at a 70% price hike this year. 

China is by no means alone in fearing a merger of Rio and BHP.

Regulators in South Africa, Canada, the US, the European Union and steelmakers in Japan have all expressed reservations.

"This is going to be a very long process. The EU investigation is likely to be most detailed," Mr Kernot says.

But before regulators can pore over the details, Rio's shareholders must accept the proposed takeover and this is no sure-fire deal.

On Wednesday, Rio Tinto's board rejected the proposal saying it did not reflect the value of the firm but it left the door open to a higher offer.

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