Anglo-Australian mining firm Rio Tinto PLC yesterday scrapped its US$19.5 billion deal with China's Chinalco (中國鋁業), choosing instead to raise US$15.2 billion in a share sale and set up a joint production venture with rival BHP Billiton Ltd.
Rio Tinto chairman Jan du Plessis said in a letter to shareholders that the planned deal with Chinalco was now dead and his company would pay it a US$195 million break fee, thus ending what would have been China's biggest overseas investment to date.
The proposed deal with Chinalco had sparked opposition in Australia amid concerns that a foreign state-backed enterprise would own a strategic stake in the country's biggest natural resource assets.
The move is a blow to China's aggressive moves to cement access to resources needed to fuel the country's rapid growth by taking strategic stakes in major producers.
Rio Tinto turned to Chinalco — whose full name is Aluminum Corp of China — in February to help repair a balance sheet weighed down by US$38.7 billion in debt. A payment of US$8.9 billion was due in October.
Under the now-scrapped deal, Chinalco would have invested US$12.3 billion in joint investments in aluminum, copper and ore mining with Rio Tinto and spent US$7.2 billion on convertible bonds in the company.
If redeemed for shares, the bonds would have almost doubled Chinalco's existing 9.3 percent stake in Rio Tinto Group to 18 percent.
Rio Tinto and its rival and former suitor BHP Billiton announced they would set up a joint production venture comprising all of their iron ore assets in Western Australia state, a move expected to save them billions.
The companies have signed a nonbinding agreement to establish the 50/50 joint venture, which covers all current and future iron ore assets and liabilities.
Chinalco president Xiong Weiping (熊維平) expressed frustration over the decision and warned that the company, which remains Rio's largest shareholder, would keep a close eye on the rights issue and BHP joint venture.
“We are very disappointed at this outcome,” Xiong said in a statement. “We had maintained an extremely flexible and constructive attitude in our consultations with Rio Tinto.”
“As the largest single shareholder in Rio Tinto, Chinalco will monitor closely the rights issue and the plans for the joint venture with BHP Billiton,” Xiong said.
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