Mining & Metals Losers: Rio, BHP

Shares of mining giants BHP Billiton and Rio Tinto are plunging, as their controversial, $116 billion iron-ore joint venture faces more challenges, and as commodities equities lead the broader market lower on eurozone fears.
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NEW YORK (TheStreet) -- Shares of mining giants BHP Billiton (BHP) - Get Report and Rio Tinto (RTP) - Get Report plunged Thursday as their controversial $116 billion iron-ore joint venture continues to face challenges.

Australia's main antitrust regulator, the Competition & Consumer Commission, said Thursday that it will hold off on any decision regarding the deal, pending more information.

A ruling has been postponed until June from the previously scheduled May 27. According to media reports, regulators have blamed the mining companies for taking six weeks to supply information that was requested on March 30. Now, regulators are asking for further details.

In U.S. trading Thursday, Rio Tinto's American depository receipts were tumbling 8.2% to $40.08, while BHP's ADRs were down 5.6% to $59.50. The broader markets were also selling off sharply as the European Union's debt crisis continued to fuel uncertainty. Commodities from base metals to gold to oil were also losing ground Thursday.

BHP Billiton Australian Mining Tax: ETF Plays

Rio Tinto and BHP now face a tough dilemma regarding the joint venture and the new windfall profit tax on mining projects proposed by the Australian government.

Both companies were planning on meeting with Australian officials this week to discuss the 40% tax on mining profits, expected to kick-in in 2012, hoping to convince them not to levy the tax on existing mines that are already in operation.

But, according to

Reuters

, industry observers are worried that the miners' challenge to the tax and their public statements about reconsidering investments in the country could backfire, angering Australian officials and sparking regulators to take a hard line on the the joint-venture tie-up, which would combine the mining operations of both companies in the rich iron-ore country of Western Australia.

BHP and Rio had been trying to convince regulators that the joint venture would help bring ore to market faster and at cheaper prices, through larger and better-planned projects.

The concern is that if BHP and Rio indicate at all the possibility that operational expansions might not happen because of the tax, it could give competition authorities the excuse to keep the joint venture from happening, analysts told

Reuters

.

Since the beginning of the month Rio Tinto's ADRs have lost 22% of their value, while BHP's have dropped about 19%, as investors peal out money given the tax uncertainties.

At the same time, it's now more crucial than ever for the two to see their joint venture plan go through to keep competitive under the hefty, upcoming tax program. The combination of BHP and Rio's Australian iron-ore operations could lead to $10 billion in synergies, according to a source cited by

Reuters

.

BHP and Rio Tinto's efforts to combine their iron-ore operations in Western Australia's Pilbara region have been met with resistance by end-users like steel producers and consumers like automakers. The tie-up faces intense scrutiny by antitrust authorities over fears that it could pave the way for iron-ore producing giants -- including BHP, Rio and

Vale

(VALE) - Get Report

-- to exercise enormous pricing power for iron ore.

Metals and mining names continued to sell off Thursday, largely driven down by Europe's ongoing debt crisis. The euro weakened further Thursday against the U.S. dollar, pressuring commodities prices and the shares of those companies who extract and process them.

Shares of Vale were down 5.2% at $24.06. Meanwhile, steel stocks were also taking a beating, with

Arcelor Mittal

(MT) - Get Report

falling 6.6% to $29.19,

AK Steel

(AKS) - Get Report

losing 4.9% to $13.69 and

U.S. Steel

(X) - Get Report

surrendering 4.5% to $47.10.

Separately on Tuesday, Australian coal miner

Macarthur Coal

turned down U.S. coal miner

Peabody Energy's

(BTU) - Get Report

lowered $3.3 billion cash offer to buy the company. Peabody reduced the offer to A$15 share from A$16 a share, citing the Australian tax proposal as one of the reasons behind the revision.

-- Reported by Andrea Tse in New York

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