The joint venture, a decade in the making, is seen as the holy grail for the two companies, offering more than $10 billion in savings by combining their iron ore mines and related infrastructure in Western Australia's Pilbara region.

In the wake of the Australian government's plan to slap a 40 percent resource windfall profits tax on mining projects, both companies have said they still want the iron ore tie-up, unveiled nearly a year ago, to go ahead.

"We're fully committed to the joint venture," BHP spokeswoman Amanda Buckley said.

Fund managers said the proposed levy, which has helped knock BHP's shares down 9 percent and Rio's down 13 percent over the past two weeks, makes the deal more necessary than ever.

"I think both companies are firmly committed to the joint venture and the rationale probably becomes even stronger under a super profits tax regime," said Tim Schroeders, portfolio manager at Pengana Capital, which owns shares in both BHP and Rio Tinto.

"There's $10 billion in synergies at the end of the journey. It's one way for both companies to maintain their current competitiveness," he said.

Miners are vigorously fighting the mining tax, with BHP and Rio both having said it would force them to review investments in Australia.

But some fund managers worry that saying projects are under threat could backfire on the Pilbara plan.

BHP and Rio Tinto have been trying to persuade competition regulators that by combining their operations they would bring more iron ore to the market more quickly, through smarter expansion plans, which would help keep a lid on price rises.

Any hint they may shelve some expansion projects as a result of the tax contradicts that argument.

"The last thing they would want to do is give the authorities an excuse not to allow the joint venture," said Peter Chilton, an analyst at Constellation Capital Management, which owns BHP and Rio Tinto shares.

The final shape of the levy is to be set in late 2010, with legislation only due to be introduced to parliament in late 2011, well after an election in Australia.

While competition regulators are likely to look at the impact of the resource super profits tax, which would slow down the approval process, uncertainty over the final scope of the tax and its fate after an election makes it hard for them to factor it into their decision.

The companies are quietly confident that the mining tax will have no impact on regulators' deliberations.

COMPETITION BIGGEST HURDLE

Investors and lawyers still see competition concerns as the biggest risk to the deal.

"It's a great unknown," said Pengana's Schroeders. The Australian Competition and Consumer Commission, seen as a relatively minor hurdle, has yet to set a new date on when it expects to rule on the venture after suspending a May 27 deadline.

The European Commission, as well as regulators in China and Japan, are expected to be much bigger obstacles to the joint venture, with steel makers and car makers heavily opposed to it.

They fear that BHP, Rio and top global iron ore producer Vale, who together control more than two-thirds of global seaborne iron ore trade, will be able to hike iron ore prices unimpeded if the joint venture goes ahead.

The European Commission's decision is not expected until later this year.

Even if the deal gets past regulators, Rio Tinto shareholders may vote against the venture because the sharp rise in iron ore prices since the deal was agreed last year favours BHP.

BHP has agreed to pay Rio Tinto $5.8 billion for a 5 percent stake to equalize their holdings in the 50-50 venture, valuing it at $116 billion.

But BHP was paying too little given that spot prices of iron ore had more than doubled over the past year, said James Bruce, a portfolio manager at Perpetual Investments, which owns shares in both Rio Tinto and BHP.

"Under the current proposal if we were to vote today on this joint venture, we wouldn't support it," Bruce said.

As agreed last June, the deal will lapse if not completed by end-December, but the companies could easily extend that deadline if the necessary approvals are delayed. (Editing by Lincoln Feast)

Sourced from www.reuters.com