Steelmakers throughout Asia cringed earlier this week when they heard the news that Aussie mining giant Rio Tinto PLC (ADR: RTP) had secured a 97% price increase for its iron-ore. But getting Rio out of the way was only half the battle, because now steelmakers are forced to confront BHP Billiton Ltd. (ADR: BHP) and its chief executive, Marius Kloppers, who may not be so easily placated.

It was Kloppers who first launched the campaign to charge Asian steelmakers a freight premium based on Australia’s proximity to the market. At the time, Kloppers was just the chief commercial officer at BHP and lacked enough clout to drum up support for his plan. But as the price of iron ore escalated, Rio Tinto came around and backed Kloppers’ play this year, forcing Chinese steelmakers to pay the a convenience premium for Australian ore.

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Monday, Rio and Baosteel Group Corp., China’s largest steelmaker, announced they had reached an agreement to raise iron-ore contract prices by 80% to 97%. That bested Brazil’s Vale (ADR: RIO) which earlier secured a 70% increase for the price of its ore. It was the first time Chinese buyers ever agreed to pay more for Australian ore than supplies from Brazil.

Many analysts believe it’s only a matter of time before BHP follows suit and signs on to the same 97% price increase obtained by Rio. But not everyone is so sure.

Recent remarks from BHP executives have indicated that the company isn’t satisfied with the increase, and may hold out for more.

"We are delighted to see that progress," Marcus Randolph, chief executive officer of the ferrous and coal units of BHP, said Monday at a presentation in London. "It doesn’t cover the full $40 to 50 difference on freight."

"The freight differential has been $55 to $60, while their settlement implies a premium for freight of a little under $7.50. It’s an improvement but it hasn’t closed the gap," Randolph said.

Aside from a higher freight premium, BHP is seeking to abolish annual contracts entirely and shift to a system based on spot prices.

"The beauty of an index is that it doesn’t result from a wrestling match between buyer and seller about what’s fair," Randolph said. "It actually results from a large number of trades that occur between independent parties."

However, the Asian steelmakers negotiating with BHP don’t seem inclined to give up anymore than they already have.

"There are big differences between what we want and what they are requesting," South Korea’s Posco (ADR: PKX) said earlier this week referring to negotiations with BHP.

One official familiar with the talks recently told Bloomberg News that any attempt by BHP to link contract prices to higher spot prices would be rejected.

While neither party would like this standoff to last a moment longer than it has to, it seems clear that BHP will not be satisfied to merely accept terms equal to those agreed on by rival Rio Tinto.

News and Related Story Links:

• The Australian:
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• Bloomberg:
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• Financial Times:
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• Herald Sun:
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• Bloomberg:
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• Financial Times:
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• Money Morning:
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Rio Tinto PLC (RTP) rejected BHP Billiton’s (BHP) revised $147 billion takeover bid hours after its rival made its offer yesterday [Wednesday].

In a statement, Rio Chairman Paul Skinner said the bid failed to recognize the "underlying value" of the company’s assets and prospects.

"Our plans are unchanged, and will remain so unless a proposal is made that fully reflects the value of Rio," Skinner said.

The statement echoed sentiments previously offered up by Tom Albanese, Rio’s chief executive officer. He cantankerously rejected BHP’s original offer of $127 billion in November saying it "significantly undervalued" the company and its prospects. Albanese added that the offer was not just out of the ballpark, but "several ballparks away" from being an accurate appraisal.

The new offer was a 13% increase from the previous, and valued Rio at 13.6 times earnings before interest and tax. It equated to 3.4 BHP shares for every one share of Rio, an improvement on the previous three-for-one offer. Rio shareholders stood to retain 44% of the resultant company under the new terms, up from 41%.

"It’s still obviously well short of where Rio places its value," Charles Kernot, an analyst at Seymour Pierce Ltd. told Bloomberg News. "BHP were right to increase their bid [yesterday] to show they are serious and I suspect there is still something in their back pocket to raise it a little bit more."

Yesterday’s deadline for BHP to "put up or shut up" was a mere five days after Aluminum Corp. of China (ACH) bought a 9% stake in Rio, with the obvious intent to derail BHP’s attempted acquisition.

Had Rio accepted BHP’s offer, it would have created a resource group capable of holding sway over a considerable portion of the world’s resources including supplies of copper, aluminum, coal and iron ore.

A potential BHP-Rio Tinto conglomerate would supply a third of the world’s traded iron ore and be the world’s biggest producer of aluminum and energy coal. The company would control virtually the entire iron-ore industry in Australia, China’s biggest supplier.

News and Related Story Links:

• Bloomberg:
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• Money Morning:
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• Money Morning:
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After having its first takeover proposal rejected by Rio Tinto PLC (RTP), BHP Billiton Ltd. (BHP) appears poised take another shot at wooing its fellow mining giant.

Rio Chief Executive Officer Tom Albanese rejected BHP’s initial $127 billion offer, saying it "significantly undervalued Rio Tinto and its prospects." Albanese also said the bid, which offered three shares of BHP for every one share of Rio, was not just out of the ballpark, but "several ballparks away" from being an accurate appraisal.

Afterwards, Rio approached the U.K. Takeover Panel and asked the regulatory agency to set a deadline for BHP to "put up or shut up." A deadline was set for Feb. 6. If BHP fails to make another offer by then, it must wait six months before it’s eligible to make another.

However, early reports coming out of Australia indicate that BHP Billiton and its Chief Executive Officer Marius Kloppers have reloaded and are ready to take another shot at Rio, possibly by the end of this week – three weeks before the established deadline.

Australia’s Herald Sun reported yesterday (Tuesday) on rumors that BHP was preparing to sweeten its proposed deal by upping its offer to $151 per share. The previous offer valued shares of Rio at $138 a piece, a 20% premium to their worth at the time.

The difference in the new offer, intended to win over Rio shareholders, would be an additional cash offer of $13 per share. BHP might also increase its stock offer from three BHP shares for every Rio share, to 3.6.

BHP is also playing up its oil interests, an area where Rio currently lacks involvement. BHP announced yesterday that its new Stybarrow oilfield off the west coast of Australia is operating to capacity.

Normally a large resource company like BHP would save those kinds of production details for its quarterly report. But the report for the December quarter isn’t due out until next week. Regardless of its intent, the fact that BHP wanted to telegraph success in its oil operations seems slightly suspicious.

Last month the company suspended a $10 billion buyback plan. It’s a common practice, as a precaution against insider trading, for companies to suspend share buybacks if there has been a development that might affect the value of their securities.

News and Related Story Links:

• Herald Sun:
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• Money Morning:
  BHP Suspends $10 Billion Buyback While Considering Further Takeover Action

• Money Morning:
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