While Western Australian iron ore is shaping up to be a major stumbling block for the merger, the ACCC found that should BHP’s play go ahead, coal industry competition issues were unlikely to be a problem for the proposed takeover.

While the new company would account for a much higher proportion of the metallurgical and thermal coal trade, it would continue to face healthy competition from both Australian and overseas suppliers, said the competition regulator.

It said the proposed takeover would also have a limited impact on coal rail haulage services in New South Wales and Queensland, and was unlikely to have too much impact on port services.

However, the ACCC said the merged entities would control or have significant influence over coal port capacity, and could attempt to extract non-competitive terms for the use of these facilities from other coal miners.

The corporate watchdog is now seeking further information on any competition issues that could arise from the proposed takeover.

Submissions to the ACCC need to be made by September 5, and the ACCC's final decision date will be deferred until October 1, 2008, to give the organisation time to consider the responses.

Shares in Rio Tinto were last trading at $A123, up $2, while BHP was unchanged at $40.15.