Australia Regulator Targets Iron Ore in BHP-Rio Bid

Australia's competition regulator on Friday identified iron ore as a potential major concern in evaluating mining giant BHP Billiton's $128bn bid for rival Rio Tinto and said it would make a final ruling on the hostile takeover by 1 October.

The Australian Competition and Consumer Commission (ACCC) devoted most of its nine-page "statement of issues" to the proposed deal's likely impact on the iron ore trade and, in particular, on Australian steel-makers.

Rio Tinto and BHP are the world's second and third largest iron ore producers, respectively, behind Brazil's Vale.

But the ACCC saw no major competition issues surrounding trade in copper, gold, uranium, bauxite and alumina.

"The ACCC's market inquiries indicated that the proposed acquisition may raise competition concerns in relation to the global seaborne supply of iron ore lump and iron ore fines," the watchdog said in a statement posted on its Web site.

"To the extent the proposed acquisition lessens competition in the global seaborne supply of iron ore, it would be likely to have the effect of increasing global iron ore prices, which would in turn increase prices paid by steel makers in Australia."

It said it was also seeking comment from BHP's rivals on certain areas of concern, which include iron ore supplies.

"Interested parties also expressed concern that there would appear to be few alternative suppliers capable of supplying significant quantities of iron ore lump and iron ore fines at a cost that would be likely to impose an effective competitive constraint on the merged firm across the anticipated business cycle," the statement added.

"In particular, Vale would be the only other supplier involved in annual benchmark price negotiations."

US regulators have already cleared the bid, which is being vigorously defended by Rio on the grounds that it is too low.

European regulators have set a 9 December date for a decision.

by James Regan and Mark Bendeich.