The $116-billion Pilbara iron ore joint venture between mining giants BHP Billiton and Rio Tinto has hit the first roadblock after the German regulator yesterday signalled that it would block the deal.

The German Federal Cartel Office (FCO) said in a statement that that its current intention is to prohibit the companies' proposed iron ore production joint venture in Western Australia.

Although the German Federal Cartel Office has not given its reasons, analysts believe that the proposed JV would hurt the automobile industry in Germany.

The two Anglo Australian miners released a joint statement saying, "The parties continue to believe that the joint venture is pro-competitive and will increase the supply of iron ore.

However, both BHP Billiton and Rio Tinto acknowledge the concerns expressed by some regulators and the obstacles to achieving clearance for the joint venture."

They also added that currently they have not taken any decision about the future of the JV since regulatory discussions are continuing.

Rio Tinto, the world's second-largest iron ore miner had in June 2009 joined hands with the third-largest iron ore miner BHP Billiton for an iron ore 50:50 production joint venture encompassing all current and future Western Australian iron ore assets and liabilities from combining the companies' Pilbara region iron ore operations. (See: Rio-BHP team up for mining venture)

The proposed JV would bring together all of Rio's 200 million tonnes a year and BHP's 130 million tonnes a year iron ore resources in the Pilbara region worth an estimated $116 billion.

Both the Anglo Australian miners said that the joint venture would help save approximately $10-billion annually through combining their mines, rail, ports and workforces.

The miners had also said at that time that they would market 15 per cent of the production through the joint venture and the rest would be sold separately by both companies, which was later scrapped in October 2009 in order to pacify global steel makers and antitrust regulators.

When the deal was planned in June 2009, Rio Tinto was in deep trouble, having accumulated a debt of nearly $42 billion due to its overpriced $38-billion acquisition of Canadian aluminium producer Alcan in 2007.

Its problems compounded when the prices of iron ore and other minerals hit rock bottom in 2008 due to the global crisis and the company, in order to repay its massive debt, proposed to sell stakes in the company™s mining assets to China's state-owned Chinalco for $19.5 billion as well as allow the aluminum giant to double its stake in Rio Tinto from 9 per cent to 18 per cent.

Facing shareholder™s revolt, Rio Tinto abandoned the deal and opted instead to raise $15.2 billion from existing shareholders, and entered into an iron ore JV with its arch rival BHP. (See: Rio terminates Chinalco deal; to raise $15.2 billion through rights issue)

As soon as the JV was announced, global steel majors, Brussels-based steel-industry lobby group Eurofer, World Steel Association, China-the largest buyer of iron ore from both BHP and Rio and other countries opposed the deal as they felt that the JV would give both miners too much pricing power on iron ore.

The JV, which has to be approved by regulators in Australia, the EU, the US, China and Japan, is also likely to be torpedoed by the European Union regulator The European Commission (EC).

The EC is considered the toughest anti-trust regulator and has already voiced concerns on the merger as it could possibly end in higher prices and reduced choice for customers.

The EC is scheduled to give its ruling later this month, while the Australian regulator The Australian Competition and Consumer Commission has already extended the probe three times in order to find out whether the proposed JV would have the ability and incentive to profitably withhold supply from iron ore markets.

Both companies have said that they have not given up on the JV, but analysts have said that Rio Tinto is no longer keen on the deal as the iron ore market has picked and the company this week announced record sales for the September quarter having sold 55.89 million tonnes of iron ore-up slightly from last year's 55.72 million tonnes.

But as per the terms of the JV, if Rio Tinto terminates the deal before 31 December, it must pay BHP Billiton a $275 million break fee.