November 28, 2016 / 11:40 PM / a year ago

UPDATE 2-Iluka takeover of Sierra Rutile hits speed bump over tailings dam concern

* Iluka calls time on Sierra Rutile takeover

* Says has concerns over a mine tailings dam

* Sierra Rutile says operating within industry standards (Adds Sierra Rutile comment)

MELBOURNE, Nov 29 (Reuters) - Iluka Resources Ltd said on Tuesday it was delaying a planned 215 million-pound ($267 million) takeover of Sierra Rutile Ltd and could possibly call the deal off after raising concerns about mine tailings dams.

Iluka said it had notified Sierra Rutile that a “material adverse change condition” of their merger agreement had been triggered “due to geotechnical risks of SRL’s tailings dams” and was in talks to extend the Wednesday deadline for the deal.

“For an abundance of caution we’ve exercised this condition,” Iluka spokesman Robert Porter said.

The concern comes a year after a tailings dam at an iron ore mine owned by BHP Billiton and Vale burst in Brazil, triggering a massive mud flow that wiped out a town and killed 19 people in that country’s worst environmental disaster.

Sierra Rutile said it was operating within industry standards and would consider its options and rights under a merger implementation agreement reached with Iluka on July 31.

“Sierra Rutile’s production remains in line with management’s and market expectations and its operations within appropriate industry standards,” it said.

Iluka had planned to complete the deal on Tuesday after receiving clearance from Germany’s anti-trust watchdog last week.

However staff who were sent to Sierra Rutile’s operations in Sierra Leone last week found that following the wet season, there was a leak in a dam which had not been apparent when they had inspected the facilities during the dry season.

Iluka now wants a few extra days to examine the tailings dams more closely.

“We will be bringing more people in before the end of the week to enable us to assess if the risk is high, low, or insignificant and can be remediated,” Porter said.

If the companies fail to agree to extend the deal deadline within five business days after Wednesday, then either side may terminate the merger agreement, Iluka said in a statement to the Australian stock exchange.

Iluka wants to take over Sierra Rutile as it owns one of the world’s largest deposits of rutile, which is used to make white pigment and titanium metal. ($1 = 0.8056 pounds) (Reporting by Sonali Paul, additional reporting by James Regan; Editing by Richard Pullin and Himani Sarkar)

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