2nd UPDATE: Rio Tinto, BHP Will Not Jointly Market Iron Ore

Rio Tinto Ltd. (RTP) and BHP Billiton Ltd. (BHP.AU) said Thursday that they have agreed not to jointly market any output from their proposed iron ore joint venture, in a move that looks designed to improve the deal's chances of regulatory approval.

The pair said the decision had been taken to clarify that the combination of the two miners' operations in the Pilbara region of Western Australia state is a production joint venture and not about coming together to market ore.

The move comes in response to a chorus of opposition to the planned joint venture from steelmakers, who worry that the combination of the world's second- and third-largest iron ore producers will result in higher prices for the key steelmaking input.

But the main audience for the miners' message is likely to be the European Union, which is yet to announce what level of regulatory scrutiny it plans to apply to the deal.

Under the terms of the non-binding agreement the pair announced in June, BHP and Rio had planned to jointly market up to 15% of the combined production from their iron ore operations in the Pilbara.

But the miners said Thursday that, following discussions, they have decided not to proceed with the joint venture marketing activity and that all production from the joint venture will be marketed separately.

"The two companies believe that this change will clarify the nature of the JV for customers and emphasize its focus on realizing significant production and development synergies," Rio and BHP said in a joint statement.

David George, mining analyst at JP Morgan, said he had never understood why the two miners had included the joint marketing clause in the first place, as it just gave ammunition to opponents of the deal.

"It was like a red rag to a bull, allowing steel customers to point the finger and say there is going to be some joint marketing," he said.

"It makes sense to pull it out but I don't think it is going to stop steel customers making submissions that are very anti the whole deal."

The European Union is yet to say whether it plans to treat the deal as a joint venture or a full blown merger, which would involve much deeper scrutiny, and George said he believes BHP and Rio have a less-than-50% chance of gaining approval.

Removing the joint marketing clause will stop opponents of the deal using this as a platform for objecting but steelmakers are still likely to argue that the joint control of such a large slice of global iron ore supply gives BHP and Rio too much power to influence pricing.

The two miners said they are pleased with progress towards a definitive joint venture agreement, which they expect to finalize on schedule, with the original announcement giving them until Dec. 5.

-By Alex Wilson, Dow Jones Newswires; 61-3-9292-2094; [e-mail]