RPT-ANALYSIS-Rio-BHP iron ore venture could free small miners

* Sharing rail lines may be price of Rio-BHP iron ore JV

* Steel mills see monopoly, mining minnows see opportunity

(Repeats item first sent Oct 28)

By James Regan

PORT HEDLAND, Australia, Oct 28 (Reuters) - A merger of the Australian iron ore mines of Rio Tinto (RIO.AX) and BHP Billiton (BHP.AX) could open their prized rail networks to smaller miners and pour millions of tonnes of ore into the world's supply pool.

Rio and BHP have so far refused to share rail lines, citing lack of spare capacity, but faced with stiff regulatory checks by the European Union and the Western Australian government, they will want to appear competition-friendly.

A growing army of small Australian mining firms hopes to capitalise on such a concession when the merger eliminates duplication and frees up capacity for third parties to haul ore.

"With access to a rail line, these guys have viable mines," said DJ Carmichael & Co analyst James Wilson. "Without it they've got nothing."

Rail access would justify developing the junior corps' own stagnant deposits spread over half a million square kilometres of Australia's Pilbara iron ore belt, many drilled and ready to go and capable of yielding 50 million tonnes a year by 2013. "The Pilbara is incredibly endowed with iron ore, so much of it not yet exploited," said Graeme Rowley, executive director of Fortescue Metals Group Ltd (FMG.AX), Australia's third largest iron ore miner.

"By unlocking the rails to everyone, the balance of world supply would move much more in favour of Australia."

Iron ore, after a brief hiatus, is gold again for anyone who can dig it up and get it on a ship, preferably bound for China, whose strong appetite for imported ore was not blunted by the global financial crisis.

For the first eight months of 2009 imports rose by a third to 405 million tonnes from a year ago, China's customs figures for September show. Goldman Sachs predicts demand will only get stronger as more rural areas are industrialised and the need for steel goes up.

Prices recoiled between 33 and 44 percent in the shipping year ending March 31, 2010 as the global financial crisis took hold, but forecasters now expect a resumption in annual price hikes as steel mills crank up production again.

The biggest anti-trust hurdle facing the Rio-BHP joint venture is the European Commission, which aired concerns last year, when BHP was trying to take over Rio, that the combination could lead to higher prices and less choice for customers.

"If Rio and BHP really want to show regulators they are serious about competition and not pursuing a monopoly, the best way to do this is by providing rail access to the junior miners," said Wilson.