Going rusty

Rio/BHP: Perhaps, in the excitement of all the other things they are doing, they had simply forgotten about it. Perhaps they can now see the clear anti-competitive angles which had somehow eluded them in the past.

Whatever the real reason, Rio Tinto and BHP Billiton have again asked the Australian Competition and Consumer Commission to postpone ruling on whether their proposed joint venture can go ahead. The anniversary of its regulatory referral is now less than three months away, and both companies have moved on.

BHP is trying to spend $39 billion to get into the potash business. Rio seems to have realized that it is better at mining than financial engineering. The ACCC, which had earlier voiced only footling objections to BHP's full bid for Rio, would look silly were it to block the JV, as it surely should.

The proposal would pool the companies' production of iron ore in Pilbara, western Australia. Each would market separately, as now, but the combined output would represent a third of the world's sea-borne ore, and the customers are increasingly concerned.

The companies proposed all sorts of Chinese walls to discourage their salesmen from colluding, but the argument was not helped by BHP's discovery in April of possible violations of anti-corruption laws in an unspecified country outside the United States and China.

Besides, the history of joint ventures is not encouraging. They tend to be uneasy compromises, and as the parent companies evolve, one side or the other will seek full control or an exit.

Had the companies been able to get away with it, the cost savings from a single Pilbara operation would have been considerable. Some of them might even have been passed onto the customers. But it's a measure of how sceptical investors had become that the ACCC's announcement on Sept. 15 made no significant impact on the share prices.

This deal was ill-starred from the start. By exposing the fabulous profitability of Pilbara, it attracted the attention of Australia's politicians, who will now tax more of the profits. It’s in everyone's interests to let it rust away quietly in the corner.