BHP raises iron ore reserves after price hike

By James Regan

SYDNEY (Reuters) - Miner BHP Billiton (BHP.AX) (BLT.L) raised estimated reserves at its biggest iron ore operation by a quarter on Tuesday, a day after rival Rio Tinto (RIO.L) set a lofty new benchmark price for the commodity.

Rio (RIO.AX) agreed a near-doubling of prices with China's biggest steel-maker, Baosteel (600019.SS), on Monday, lifting the share prices of both Rio and BHP, though BHP has yet to agree a new price on its own contract renewals with Asian steel mills.

"This is an indication of the future potential of these assets," Marcus Randolph, head of BHP's ferrous and coal division, said after the company raised its ore reserves estimate at its Western Australia Iron Ore operation by 23 percent.

"Iron ore (division) is seeking to triple its capacity between 2007 and 2015," he told reporters on a conference call.

The valuation of Australian iron ore mines are at the centre of BHP Billiton's $167 billion (84.9 million pounds) all-share bid for Rio Tinto, which has dismissed the approach as too low.

BHP is smaller in iron ore mining than Rio but larger overall. Rio argues that BHP's bid of 3.4 BHP shares for every Rio share discounts the value of its growth prospects and, in particular, its potential in iron ore.

BHP's Randolph said his company had not yet settled on contract renewals with its own Asian customers, but industry analysts said BHP may have to follow Rio's lead.

BHP has been pushing its own alternative pricing blueprint which analysts say could have reaped even higher returns but looks to have been overtaken by Rio's deal with Baosteel, which represents a jump of up to 96.5 percent over last year's price.