Rio Tinto inks iron ore deal

July 24, 2008

July 24th (Business Spectator) –

Global miner Rio Tinto Ltd looks set to secure another 1.5 million tonnes of iron ore annually, after the company announced it had agreed on the commercial terms of a proposed deal with Iron Ore Holdings (IOR).

Once a feasibility study was done on the new mine, Rio Tinto would purchase the ore from IOR, it said in a statement.

“This enables IOH to develop a small resource that would face large capital costs on a stand-alone basis and most likely remain undeveloped,” said chief executive of iron ore Sam Walsh.

The extra iron ore is unlikely to directly bolster Rio’s earnings as the miner will be paying a premium compared to the iron ore from its own operations. However, the agreement does provide Rio with extra stockpile’s to increase volume and deal with production interruptions.

Rio Tinto is trying to fend off a hostile takeover from rival miner BHP Billiton Ltd.

A key theme in the arguments proffered by Rio against the merger are its allegedly superior iron ore operations, which it claims are not adequately valued by BHP Billiton’s 3.4 share-swap offer.

Recently, BHP matched a record increase in iron ore price contracts with its Chinese customer Baosteel, announcing a 96.5 per cent increase for iron ore lumps.

IOR shares emerged from a trading halt to rocket 20.17 per cent on the announcement, trading at 68.5 cents per share at 1246 AEST, while Rio shares declined 3 per cent to $116.24.

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