Business & Finance Club - Sydney:  RIO Tinto's $US116 billion iron ore venture with BHP Billiton is close to collapsing after regulators objected to the deal.

Rio was forced to issue a statement saying that no formal decision had been made on the future of the project.

Nevertheless, both companies are understood to believe that European regulators' disapproval makes it unlikely that the deal can succeed in its present form.

The proposed joint venture would have seen Rio and BHP integrate their vast iron ore operations in the Pilbara region of Western Australia.

The deal would have produced estimated savings of $US10bn ($10.3bn) and Rio, which has the bigger Pilbara operation, would have earned $US5.8bn from BHP to equalise their holding.

The deal raised a number of concerns for regulators as Rio and BHP control about 40 per cent of the world's exported iron ore.

Steel producers, particularly in China, were worried that the arrangement would have further concentrated power in the hands of their suppliers.

Rio said: "The board has not made any final decisions about possible outcomes or next steps relating to the proposed Rio Tinto/BHP Billiton iron ore production joint venture in Western Australia.”

It added, however, that the board "acknowledged recent communications from regulators that indicate potential obstacles to achieving clearance for the joint venture".

The statement was prompted by a leak to The Sydney Morning Herald newspaper that quoted directors discussing the deal at a board meeting on Monday.

The report suggested that in addition to the regulatory concerns, Rio had begun to question whether the link with BHP was right financially.

The venture was agreed last year when the miner was desperate for cash and seeking to reduce its $US39bn debt.

An improvement in commodity markets, a $US15bn rights issue and disposals have enabled Rio to more than halve its debt and it no longer needs the BHP equalisation payment to rebalance its books.

There was also a growing feeling among some institutional investors that the terms of the agreement favoured BHP.

As a result, even if regulators had given the joint venture the go-ahead it could still have unravelled in a dispute over cash.

Tony Robson, an analyst at BMO Capital Markets, said: "On current iron ore prices, the $US5.8 billion that would have been received by Rio from BHP for the JV appears well below fair value for the tonnage involved."