Pressure is growing on BHP Billiton to return billions of dollars of retained earnings to shareholders, but the top global miner is unlikely to succumb until the fate of a planned iron ore joint venture with rival Rio Tinto is known.

Shareholders are set to quiz BHP at its Australian annual meeting on Thursday on its plans for the $20 billion plus cash it churns out a year, with debt of just $5.6 billion and a hoard of Australian tax credits available.

They've got a huge surplus of franking credits and they've got very low gearing, so capital management's got to be an issue, said Warwick Cumming, deputy head of equities at Tyndall Investment Management, which owns BHP shares.

BHP's comments that it wants to expand in iron ore, coking coal, copper, petroleum and potash have also set tongues wagging.

Could it be lining up another takeover bid for Rio Tinto? Is it going to team up with Royal Dutch Shell to buy Woodside Petroleum? Is it going to make a bid for Potash Corp of Saskatchewan?

So far, BHP seems to be focused on sealing a $116 billion iron ore production joint venture with Rio Tinto. The world's No.2 and 3 iron producers have said they are on track to sign a binding agreement by December 5.

Under a deal agreed in June, BHP committed to pay Rio $5.8 billion to obtain an equal stake in the joint venture.


Rio could ask BHP to pay more, now that Rio is less desperate after slashing debt with a $15 billion rights issue and $5.2 billion in asset sales, and in light of the recovery in the iron ore market since the plan was announced in June.

The deal was a product of a different time ... The need to offer up the synergy benefits to BHP may no longer be there, said Matt Williams, head of Australian equities at Perpetual Investments.

Investors said they would not expect BHP to baulk at paying a bit more if it means it will secure more than $10 billion in savings from putting the two operations together.

BHP also plans to spend $10 billion on exploration and development projects in the year to June 2010.

Beyond that, the company could afford to return tens of billions of dollars to shareholders, staggered over a few years, said Shawn Burns, a portfolio manager at Integrity Investment Management.

If BHP's view is cautious about growth in the short- to medium term, I wouldn't be surprised if BHP embarks on a buyback, said Rob Craigie, an analyst at broker FW Holst.

The company has previously returned $12.7 billion through share buybacks.

But no buyback or any new acquisition is likely before it is known whether the Rio joint venture will actually go ahead.

The biggest hurdle is Europe's competition regulators, who did not like BHP's proposed takeover of Rio last year. A decision by regulators might take months.

I think shareholders are pretty broadly in favor of it, said Tim Schroeders, a portfolio manager at Pengana Capital, which owns shares in both BHP and Rio. It's more a question of winning regulatory approval, and to that end regulators appear to be a law unto themselves.

Investors and analysts said talk that Rio might be getting cold feet about the iron ore venture did not fit with comments from CEO Tom Albanese at recent investor briefings.

He said this is a must-do deal, said Ken West, a partner at Perennial Growth, which owns both BHP and Rio shares.

(Editing by Muralikumar Anantharaman)