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Rio Tinto, BHP Billiton Form Iron Ore Partnership; Rio Drops Chinalco Deal

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Australian mining giants Rio Tinto and BHP Billiton are forming a joint venture covering their iron ore assets in Western Australia.

The companies announced the joint venture on Friday, saying the deal "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.

BHP Billiton, the world's largest mining company, will pay Rio Tinto US$5.8 billion for the joint venture.

In a release, the companies said the joint venture is expected to provide "significant value" from the firms' overlapping resources operations.

The announcement comes on the same day that Rio Tinto said its proposed partnership with Chinese state mining company Chinalco had fallen through. Chinalco will receive payment of US$195 million for the aborted deal.

"The joint venture will establish an unrivaled iron ore business with world class assets and infrastructure," said Rio Tinto Chairman Jan du Plessis. "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 CEO Marius Kloppers said the deal acknowledges substantial synergies 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," Kloppers said.

Under terms of the deal, the companies will combine adjacent mines into single operations, cut expenses through shorter rail hauls and more efficient port capacity and combine the management, procurement and general overhead activities into a single entity.

Last fall, Rio Tinto fought off a hostile takeover attempt from BHP Billiton. The firm has been struggling to repay debt of about $10 billion.

Rio said it would also issue an Australian rights issue, designed to raise up to $15.2 billion.

Rio Tinto shares, which had been in a trading halt pending the announcement, jumped 12.4 percent higher when trading resumed.
BHP Billiton shares were higher by about 8.3 percent at mid-morning in Sydney.

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