MAC: Mines and Communities

Rival miners share partner

Published by MAC on 2006-06-14

Rival miners share partner

Jamie Freed, The Age

14th June 2006

RIVALS BHP Billiton and Rio Tinto will be sharing a joint venture partner after BHP signed an exploration and development alliance with Russian mining heavyweight Norilsk Nickel.

Rio signed a similar groundbreaking deal with Norilsk in January which the investment community has widely praised.

The rival miners will be searching different geographic regions for the next generation of world-class deposits through their separate alliances with Norilsk.

BHP will target a range of commodities in north-west Russia and western Siberia, while Rio is searching for gold, copper and other metals in eastern Russia and south-east Siberia.

Norilsk is the world's biggest nickel and palladium producer and has a market value of $US25 billion ($33 billion). It is also a major producer of platinum, copper and cobalt.

But the company has been looking for Western partners to help it develop other commodities across Russia's huge geographical expanse.

In turn, BHP and Rio have been looking beyond heavily explored mining centres such as Australia, North America and South Africa to ensure a continued development pipeline of world-class projects.

"This is an important step for BHP Billiton and represents a diversification of our asset base," BHP's chief executive, Chip Goodyear, said of the Norilsk deal in a statement yesterday.

BHP lost millions of dollars on unsuccessful exploration in Russia in the 1990s. The company pulled out of the country but decided to open a Moscow office under Mr Goodyear's leadership in 2004.

Both BHP and Rio seem to have decided it is easier to be a minority partner with a local company than to have independent operations in Russia.

Any joint venture companies formed with Norilsk will give the Russian partner a majority stake of 50 per cent plus one share, while BHP will hold 50 per cent minus one share.

As part of their deal, Norilsk and Rio formed a company called RioNor Exploration in April. Norilsk holds 51 per cent of RioNor and Rio owns the rest.

"I would envisage we would start to spend millions of dollars this year and increase that in subsequent years as we find targets for drilling," Rio's chief executive, Leigh Clifford, said in February.

However, he has emphasised that Rio remains a conservative company. Most of its assets are in Australia and North America.

Although BHP and Rio seem to have locked up huge amounts of territory under their deals with Norilsk, a spokesman for the Russian company said it was open to deals with other foreign miners.

"We are constantly looking at possibilities for further development of the business in Russia and abroad and seek to involve partners where it is mutually beneficial," Norilsk spokesman Victor Borodin said.

"Russia is too large to be covered by two companies."

BHP shares fell $1.48, or 5.5 per cent, to $25.25, while Rio shares fell $2.87, or 4 per cent, to $70.90 on a losing day for the local sharemarket.

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