Brussels regulators are taking the unusual step of looking at long-term effects of miner BHP Billiton's $170 billion bid for rival Rio Tinto, according to people who have seen an EU questionnaire.

The Commission has gone well beyond the usual two or three years and is asking competitors and customers about effects of the deal on their businesses out to 2015, the sources told Reuters.

A European Commission spokesman had no comment, noting the Commission never comments on pending merger reviews.

The longer time frame means the Commission will not only be looking at a combined firm having a bigger market share in iron ore, the main focus of the probe, but controlling much of the Australian deposits giving it ability to expand, analysts say.

I think that this raises the risk ... of whether the commission is going to agree on this merger eventually materialising, said analyst Luc Pez at Oddo Securities in Paris.

This case becomes very problematic, especially in iron ore, given the large concentration for both BHP and Rio in the iron ore resource base, especialy as the bulk of their reserves are in Australia.

The European Commission, the European Union's executive arm, has responsibility for peering into the future and assessing the competitive effects of creating a world-wide mining behemoth that trades from China to Europe.

Iron ore is expected to be the main focus for regulators since a takeover would combine the world's second and third biggest producers of the key raw material for steelmaking.


Steel producers across the globe have vowed to fight a tie-up of BHP and Rio, which would give the combined firm 36 percent of the seaborne trade in iron ore. Steel firms, hit by a near doubling of iron ore prices this year, fear that a combined firm would have too much pricing power.

BHP argues that the merged firm would have only a quarter of the larger iron ore market that includes domestic production in China and the new group would help consumers by boosting production faster to help relieve supply shortages.

The review comes against a background of rising commodity prices to help feed China's voracious appetite for raw materials needed to build new infrastructure, new factories and ramp up production of automobiles.

The Commission's job is to determine if the all-share offer, spurned by Rio as too low, would lead to even bigger price increases, from the point of view of European buyers.

Alternatively, the Commission has authority to find that reducing the number of major players world-wide would not harm customers.

Friday is the deadline for the Commission to complete its work on the takeover, but as is widely expected, Brussels will declare that it has decided to open an in-depth, 90-working-day phase two investigation, sources familiar with the situation say.

Once likely extensions are added in, the Commission's review may last beyond the year-end.

Ordinarily, competition authorities rarely attempt to look out more than a few years, except in such innovation markets as pharma, where new drugs may be in development over five years.

The Commission is looking seven years down the line because of the long-term nature of the mining industry.

Development of new iron ore fields requires exploration, and the building or acquisition of huge infrastructure, railroads, processing facilities and docks.

Here we are talking about a resource business, it is a question of who controls the resource and who has the ability to expand the capacity in the future, Pez said.

(Reporting by David Lawsky and Eric Onstad; editing by Rory Channing)

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