Australia regulator targets iron ore in BHP-Rio bid

By James Regan

SYDNEY (Reuters) - Mining giant BHP Billiton's (BHP.AX) (BLT.L) $128 billion (68 billion pounds) bid for rival Rio Tinto (RIO.AX) (RIO.L) could raise competition issues in iron ore, Australia's antitrust regulator said on Friday.

With mines across Australia's ore-rich Pilbara region, Rio Tinto and BHP are the world's second- and third-largest iron ore producers, respectively, behind Brazil's Vale (VALE5.SA) RIO.N, and analysts reckon a combined group would control about 35 percent of the world's seaborne traded iron ore.

In a 9-page "statement of issues" ahead of its October1 ruling, the Australian Competition and Consumer Commission (ACCC), which can order companies to sell assets if it thinks they have too big a hold in one sector, highlighted the likely impact of a deal on the iron ore trade and, in particular, on Australian steelmakers, but saw no major competition issues in copper, gold, uranium, bauxite or alumina.

"I don't think that's a surprise to the two companies, particularly BHP ... that iron ore would be the one area the regulators would be looking at very closely," said Ken West, a partner at Perennial Growth Management.

"But the Pilbara is the one they don't want to be tampered with. If the regulators don't show flexibility, then the Pilbara could become a deal breaker," West said.

The European Commission last month opened an in-depth investigation into BHP's hostile 3.4 shares for each Rio share bid -- which Rio insists is too low -- with a list of sweeping price and competition concerns from iron ore to aluminium.

Regulators in the United States, where the proposed deal would have less market impact, cleared the bid last month. The EU has set a December 9 date for its ruling.

BHP has filed documents with competition authorities in China, where new anti-monopoly laws have been introduced.