BHP - Rio Tinto Form World’s Largest Iron Ore Operation

Two corporate giants in the mining industry, BHP Billiton (BHP) and Rio Tinto (RIO) are reported to moving ahead with the massive plan to merge their iron ore operation in Western Australia.

The deal is yet to be finalised which is believed will form the biggest iron ore operation worth of $116 Billion US dollars, passing the combined market value of Commonwealth Bank and Westpac - two of the largest Australian companies. Based on the current scenario, the earning before depreciation, tax, interest and amortisation is expected to be around $15 billion US dollars for the operation.

Both Rio and BHP is expected to have considerable amount of savings if the deal succeeds. Marius Kloppers, the chief executive of BHP Billiton is expecting the savings to touch as much as $10 billion US dollars. It is to be mentioned that BHP and Rio signed a deal recently to go for a merger of their bordering port, mine systems and rail that are located in Pilbara.

Deal condemned by key market players

The massive BHP - Rio merger plan has gained a lot of attention in the international market shaking up the major competitors like Europe, China and Japan. The merged iron ore operation is expected to contribute at a significant level in the international market as far as the quantity of production is concerned and will gain an upper hand over its major competitor- Vale, the Brazil based company. According to recent forecasting, Vail is set to take the control over 30 percent of the seaborne market supply.

However, the possible merger of the BHP and Rio iron ore operation was criticised by international steel producers considering the fact that the join operation will acquire control over an annual production of 320 million tonnes- around 40 percent seaborne iron ore supply straight away. The decision was termed as “Monopolistic” by China, a major player in this market. Rio Tinto and BHP are considering selling around 15 percent of their products individually, an attempt to tackle the EU regulators and to cool off the present criticism made by the competitors.