Fortescue, BC Iron surge in Australia

123jump.com Staff
05 Jun, 2009
New York City

BHP Billiton and Rio Tinto agreed to form a joint venture to share haulage resources and iron ore mines in Pilbara region of Western Australia. Fortescue and BC Iron also agreed on a similar deal. Australian xenophobic lawmakers in the end scuttled the deal with China.

[R]7:00 PM Sydney, 5:00 AM New York – BHP Billiton and Rio Tinto agreed to form a joint venture to share haulage resources and iron ore mines in Pilbara region of Western Australia. Fortescue and BC Iron also agreed on a similar deal. Australian xenophobic lawmakers in the end scuttled the deal with China.[/R]

ASX 200 index in Australia increased 36.60 or 0.93% closed to 3,971.20.

Rio Tinto and BHP agreed to form equally owned joint venture for the iron ore assets located in Western Australia. The four month old saga ended after Rio canceled its investment deal with Aluminum Company of China.

Australian companies have long remarked that economies in China, India and Indonesia are not open to them and have launched at times forceful attacks on governments of these nations. But for the last three months, Australian lawmakers have shown largely xenophobic attitude to foreign investment when it comes to China.

Australia preferred to protect its iron ore monopolies and not accept investment from China.

BHP will pay $5.8 billon to Rio Tinto and the merger is expected to save $10 billion combined for both companies.

The joint venture will operate as a cost center and provide iron ore to in equal volumes to both companies that they will market independently.

The initial Chairman of the non-executive owners'' council will be Sam Walsh, currently Rio Tinto Chief Executive Iron Ore, and the initial CEO of the production joint venture will be BHP Billiton Iron Ore President, Ian Ashby.

The final binding contract is expected to sign in six months and has a breakup fee provision of $275 million.

In a separate deal, Rio will offer 21 new shared for every 40 shares held in the company at 1,400 pence each. The price reflects a 49% discount to the current shareholders.

Gainers & Losers

BHP Billiton Limited surged 8.7% to $38.18 and Rio Tinto surged 10% to $72.49 after the announcement of the merger. Rio will also raise $15 billion in rights offering.

Minara Resourced Limited added 4% to 89 cents after nickel prices added more than 2% in a ten-week rally in metal prices.

Fortescue Metals Group Limited surged 13.6% to $3.18 after the company formed a joint venture with BC Iron Limited. BC Iron surged 39% after it agreed with Fortescue in a venture where the company will give up its half of its Nullagine iron ore project in Pilbara and gain access to haulage and port facilities of Fortescue.

Goodman Group surged 4.2% to 37 cents after media reports suggested that Canada Pension Plan Investment Board and China Investment Corp are expected to recapitalize the company.

ASX 200 Index Movers

NRW Holdings Limited led the decliners in the ASX 200 index of 13.16% followed by losses in Abacus Property Group of 7.04%, in Macquarie Office Trust of 5.88%, in Aquarius Platinum Limited of 5.52% and in Hastings Diversified Utilities Fund of 5.45%.

Boart Longyear Limited led gainers in the ASX 200 index with a rise of 20.69% followed by gains in Sundance Resources Limited of 19.23%, in Emeco Holdings Limited of 15.05%, in Fortescue Metals Group Ltd of 13.57% and Murchison Metals Limited of 10.77%.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 99.05 or 1.02% to 9,768.01, Hang Seng index in Hong Kong increased 176.76 or 0.96% closed to 18,679.53, CSI 300 index in China lower 14.44 or 0.49% closed to 2,939.31. ASX 200 index in Australia increased 36.60 or 0.93% closed to 3,971.20. The KL Composite index in Malaysia higher 11.53 or 1.08% closed to 1,075.50.

The Kospi Index in South Korea increased 16.57 or 1.20% to close at 1,394.71. SET index in Thailand closed higher 10.97 or 1.85% to 604.57 and JSE Index in Indonesia increased 46.22 or 2.27% closed to 2,078.93. The Sensex index in India increased 94.87 or 0.63% closed to 15,103.55.