THE DISTILLERY: BHP-Rio RIP

There's nothing like a good scoop to get the juices flowing in the media. One side trumpets its triumph, rivals seek to downplay or diminish it. And so it was with the Fairfax broadsheets' scoop yesterday on the fate of the BHP Billiton-Rio Tinto iron ore joint venture in Western Australia. What made it a bigger scoop was the verbatim dialogue from the teleconferenced board meeting earlier this week. Well, one News Ltd writer claimed he killed it off months ago, another took the deep and meaningful route, seemingly wringing his hands at this "breach" of Rio's boardroom security. Oh dreary me. Medicine, burial and dead parrots were also invoked.

Dr Ian Verrender, of the Fairfax Media business medical centre, provided this diagnosis this morning: "The patient may have died long ago and rigor mortis given way to decomposition, but still Rio Tinto refuses to announce a date for the funeral. The truth is that the biggest deal in Australian history, the hugely hyped $120 billion merger between BHP Billiton's and Rio Tinto's interests in the world's premier iron ore province, has been off the operating table for most of this year. It was dealt a fatal blow by the sharemarket recovery of late last year, the resurgence of the Chinese economy and China's renewed demand for steel-making raw materials. It was kept on life support until about August, but even then, purely for the sake of appearances."

And fellow Fairfaxian business diagnostician Malcolm Maiden wrote today: "The Rio Tinto chairman, Jan du Plessis, oversaw one of those balancing acts when the group's board teleconferenced on Monday, which is why Rio was able to come out today and say no final decisions had been taken about ''possible outcomes or next steps'' relating to its proposed Pilbara iron ore mining joint venture with BHP Billiton. The statement is right, as far as it goes. The regulators have not delivered their verdicts, and Rio's board has not made any decisions. But as this newspaper reported yesterday morning, the BHP-Rio iron joint venture is a dead parrot, in Python-speak. It's not just resting. BHP and Rio are going through the motions but the deal's metabolic processes are history, and both groups are considering their options." This joint venture's "shuffled off its mortal coil", guv'nor.

Terry McCrann, in the Herald Sun, was more mortician than diagnostician in his jotting this morning: "Rio Tinto and BHP Billiton are dancing delicately, with eyes studiously averted, around the corpse of their proposed Pilbara joint venture. Neither wants to 'see' the body, far less move formally to bury it. At least not just yet. And they can live with it 'in the room', so to speak, as the parfum de mort is barely noticeable and indeed even passingly pleasant. But be under no illusion. The JV and its $10 billion-plus of lush synergies has been dead for months. Indeed I pronounced the last rites over the-then still twitching corpse back in April." Much like his interest rate rise call this week, I suppose.

Stephen Bartholomeusz in Business Spectator described the impending death as more of a lost opportunity than a company changing: "In that context the production joint venture has been relegated to a 'nice to have' rather than a necessity and its demise an irritant rather than anything that might destabilise or strip material value from either company." And with the shares of both companies up 2.6 per cent yesterday, a rise bigger than the market's solid gain, you'd have to say investors aren't weeping tears over the venture's demise.

And it was a case of 'O Dearie Me' for Matthew Stevens in The Australian this morning: "Reports of the death of the $US116 billion Pilbara merger are a little too definitive, though, for once, not necessarily premature. Rio Tinto yesterday rejected claims it was ready to walk away from a proposal to merge its Australian iron ore business with BHP's Pilbara operations, but in doing so confirmed the worst-kept secret in global mining, that the European competition regulator was very, very likely to kill the deal. The first thing to say about the media report that triggered Rio's confirmation both of troubles at the Brussels regulatory mill and of a board discussion on Monday, is that the conversations have been described with chilling accuracy, a fact deeply disturbing to a company as proper and committed to boardroom integrity as is the Anglo-Australian miner. Just what went wrong and how Rio's boardroom security was so seriously breached will be a matter for a deep and meaningful internal investigation." And just why that would interest a columnist on a newspaper other than 'damn, wish I had the info' is beyond me. A strange column indeed.

And speaking of Terry McCrann, occasional columnist Christopher Joye wrote in Business Spectator yesterday: "A couple of weeks ago I wrote that Terry McCrann had called an October rate hike with the consequence that financial markets had favourably shifted the probabilities of this event coming to pass. I argued that, "I would love to see the RBA pause in October to prove the 'Shadow Governor' wrong…it is silly that he still moves markets based on pure speculation, which has its legacy in the RBA historically wording him up.” Regular readers will recall that I've pressured the Bank to cease this practice for over a year. So it turned out that Australia's central bank sensationally wrong-footed Terry McCrann – the 'former Shadow Governor', as one economist described him last night – for the first time ever within a week of a Board meeting. In what is a major governance win for the Bank, McCrann, who remains our best rates commentator, will never hold the same sway with markets again." Hmmmm.

And The Australian's Economic Editor, Michael Stutchbury got out his faith nag, Rate Rise Looms this morning and started flogging it towards a Melbourne Cup start: "The Reserve Bank's decision to sit on its hands for another month does not change the prospect that interest rates will soon head higher. Melbourne Cup day on November 2 looks a good bet, followed by several more increases next year. The central bank's track record and latest form always suggested November was the better bet – unless something goes badly wrong in the meantime." This is the official first starter in Reserve Bank Cup, to be run at 2.30 pm the first Tuesday in November.

And Clancy Yates in the Sydney Morning Herald spotted the most interesting item in the IMF's latest World Economic Outlook overnight: "The International Monetary Fund says the boom in metal prices, which has driven a surge in Australian export income, may only be halfway through its growth spurt. In the fund's biannual World Economic Outlook, published today, it shrugs aside recent commodity market jitters to state there are ''few convincing signs'' that key metal supplies are catching up with demand. After studying swings in global metal prices since 1850, the fund says the commodity boom that began earlier this decade is only about halfway through the average growth period of 20 years." And guess which country still has lots of metals?

Elsewhere, Fairfax's Elizabeth Knight wonders what Virgin Blue will do about its latest computer stuff ups: "It is believed Virgin Blue is looking at legal avenues to recover some of the damage to its cash flow from the collapse of the booking system from the company that installed it, Accenture's Navitaire. Exactly how much success Virgin could have winning damages will depend on the nature of the contract it has with Navitaire. The damage to the Virgin brand will be far harder to assess. A few years back when Qantas suffered a run of industrial relations and mechanical safety issues resulting in a major run of flight cancellations over a month, its reputation was badly battered. However the customer memories faded pretty quickly."

As the Australian dollar traded around a two-year high this morning at over 97.60 USc, the Australian Financial Review reported "The federal government fears the high Australian dollar and growing currency imbalances could damage the budget outlook, making it more difficult to achieve a surplus by 2012-13." The paper also pointed out that "The IMF has cut its forecast for world economic growth next year, highlighting the risks to the global recovery that the Reserve Bank of Australia cited this week after unexpectedly leaving interest rates on hold." And Australian growth is estimated at 3 per cent this year and 3.5 per cent in 2011, with China's growth forecast at more than 10 per cent this year and 9.6 per cent in 2011.