BHP to pursue talks with Rio Tinto

SYDNEY, Australia — BHP Billiton said Wednesday it would continue to pursue talks with Rio Tinto, the parent company of Kennecott Utah Copper, on combining the mining giants in a multibillion-dollar deal, arguing to shareholders it was a logical and compelling step.

At BHP Billiton Ltd.'s annual general meeting in the southern Australian city of Adelaide, which was also broadcast on the Internet, senior executives said a merger with Rio Tinto Ltd. made strategic sense and would add value to the shares of both companies.

BHP Billiton, the world's biggest mining company, made a $150 billion all-stock takeover bid for Rio Tinto, which has rejected the proposal.

The proposed deal has raised concerns among some customers, including major companies in China and elsewhere in Asia, that combining the companies into a single behemoth could lead to price increases for its products.

BHP Billiton executives have toured Asia recently trying to sell the idea of the deal to major customers, and on Wednesday they took the pitch to shareholders.

"The combination presents an opportunity to create the world's premier diversified natural resource company, and in our view no other combination is as logical or compelling," chairman Don Argus said.

Chief executive officer Marius Kloppers added: "Our strategy is very simple: These two companies are worth more put together than they are worth apart."

He said BHP remained hopeful that Rio Tinto would engage in merger talks.

Rio Tinto, in fighting the takeover offer, may boost its value by $31 billion with plans to raise iron-ore output and get better-than-expected cost savings from the acquisition of Alcan Inc., UBS AG said.

"Higher iron-ore production could add around $28 billion in value," Sydney-based UBS analyst Glyn Lawcock said in a research note dated Monday. The cost savings from Rio's $38.1 billion purchase of Alcan may bolster Rio Tinto's value by $3 billion, he said.

Rio Tinto chief executive officer Tom Albanese outlined the plans this week as part of his attempt to repel BHP's unsolicited $129 billion all-stock takeover proposal, which he said undervalues the world's third-largest mining company.

Iron-ore production could treble to more than 600 million metric tons a year, Albanese said. Cost savings from the Alcan acquisition may be $940 million, 50 percent more than forecast, Rio Tinto said. A review found possible assets sales of as much as $30 billion.

Rio Tinto said this week that demand for iron ore, copper and aluminum may as much as triple over the next 25 years, driven by expanding economies in China and India. Rio Tinto is the world's biggest aluminum producer and second-largest supplier of iron ore, used in steelmaking.

The estimated cost of increasing iron-ore output to the target of 600 million tons could be $26 billion, Rio Tinto spokesman Gervase Greene said. The company produced a total of 133 million tons of the ore in 2006.