10. The Iron Ore Production Joint Venture Between Rio Tinto and BHP Billiton: The European Angle of a Multinational Antitrust Review

The main iron ore products used for steel production are lumps, fines and pellets. Lumps and fines are produced from the same type of iron ore concentrate and are separated by screening and sorting, with the diameter of lumps particles generally measuring more than 4.75 mm and the diameter of fines particles generally measuring less than 4.75 mm. Fines are more difficult to process because they must be sintered by the steel mill before they can be charged to the blast furnace.

Case No COMP/M.4985 – BHP Billiton/Rio Tinto.

The press release of 5 June 2009, including the “core principles” of the joint venture attached thereto (hereinafter referred to as the “Term Sheet”) can be found under the following link: http://​www.​riotintoironore.​com/​documents/​090605_​Rio_​Tinto_​and_​BHP_​Billiton_​announce_​West_​Australian_​Iron_​Ore_​Production_​Joint_​Venture.​pdf.

See press release of 15 October 2009 which can be found under the following link: http://​www.​riotinto.​com/​documents/​PR768g_​Rio_​Tinto_​and_​BHP_​Billiton_​update_​on_​proposed_​iron_​ore_​production_​joint_​venture.​pdf.

See press release of 5 December 2009 which can be found under the following link: http://​www.​riotinto.​com/​documents/​PR780g_​Rio_​Tinto_​and_​BHP_​Billiton_​sign_​binding_​agreements.​pdf.

The press release of 5 June 2009, including the “Term Sheet” attached thereto can be found under the following link: http://​www.​riotintoironore.​com/​documents/​090605_​Rio_​Tinto_​and_​BHP_​Billiton_​announce_​West_​Austr alian_Iron_Ore_Production_Joint_Venture.pdf

Case No COMP/39749 – Rio Tinto & BHP Billiton.

Section 5.1 of the Term Sheet.

Benchmark price negotiations are a mechanism for price negotiations that has traditionally been used in the iron ore sector to determine annual reference prices (although the system has come under serious pressure recently).

Sections 2.4(d)a and 2.4(d)d of the Term Sheet.

This can be made concrete with a stylised example. Consider a hypothetical scenario where, absent the joint venture, Rio unilaterally decides to withhold 10 million tons per year of output and, as a consequence, loses a margin of US$ 300 million on the withheld sales. The benefit to Rio would be an increase in the margin on the remaining sales of, say, US$ 200 million (due to a higher market price following the withdrawal of the 10 million tons per year). In this hypothetical example, the withholding of 10 million tons per year would be unprofitable, and Rio therefore would not be expected to pursue such a withholding strategy. Now consider Rio’s attitude to the same strategy within the joint venture. In order to achieve the same impact on market prices, the joint venture would need to reduce output by the same amount (10 million tons per year). The difference would be that a 10 million tons per year reduction in output by the proposed joint venture would effectively be achieved by a 5 million tons per year reduction in sales by Rio and a 5 million tons per year reduction in sales by BHPB. The cost of the withholding to Rio would also be halved – falling from US$ 300 million to US$ 150 million. The benefits of the withholding would be undiluted – remaining at US$ 200 million. Rio would now have an incentive to pursue a previously unprofitable withholding strategy. (The same logic would apply to an assessment of BHPB’s incentives to withhold supply with and without the joint venture.)

The term “greenfield expansion” refers to expansions through the exploitation of new, previously unused sites. The term “brownfield expansion” refers to expansions of existing mines or the opening of new pits adjacent to existing mines.

Section 6.4 of the Term Sheet.

Section 5.1 of the Term Sheet.

BHPB and Rio press release of 5 June 2009, available at: http://​www.​riotintoironore.​com/​documents/​090605_​Rio_​Tinto_​and_​BHP_​Billiton_​announce_​West_​Austr alian_Iron_Ore_Production_Joint_Venture.pdf

European Commission guidelines on the applicability of Article 81 of the EC Treaty to horizontal cooperation agreements, OJ 2001 C3/115, para. 33; and European Commission guidelines on the application of Article 81(3) of the EC Treaty, OJ 2004 C101/97, para. 49.

Sections 3.13(c) and 3.13(e) of the Term Sheet.

Section 3.13(i) of the Term Sheet.

Section 3.13(h) of the Term Sheet.

Section 3.13(a) of the Term Sheet.

See Case summary of 24 January 2011 published on the website of the FCO: http://​www.​bundeskartellamt​.​de/​wEnglisch/​download/​pdf/​Fallberichte/​B01-010-10-english.​pdf?​navid=​42

Press statement of Rio Tinto of 18 October 2010: http://​www.​riotinto.​com/​media/​18435_​media_​releases_​19664.​asp