Australia’s competition watchdog said yesterday it would not oppose the Aluminum Corp of China’s (Chinalco, 中國鋁業) plan to double its stake in debt-laden miner Rio Tinto because the deal probably would not give the companies unfair influence over global iron ore prices.
The deal may yet be scuttled by Australia’s government on national interest grounds, but the decision by the Australian Competition and Consumer Commission (ACCC) will give the US$19.5 billion bid a boost after weeks of trouble.
Australia’s Foreign Investment Review Board announced earlier this month it wanted another 90 days to scrutinize the deal before it makes a recommendation to Australian Treasurer Wayne Swan, who is under rising political pressure to block it because it would sell Australian assets to owners overseas.
The commission ran a parallel review of the deal to assess its potential effects on competition, and said yesterday it had decided not to oppose it.
“The ACCC concluded that Chinalco and Rio Tinto would be unlikely to have the ability to unilaterally decrease global iron ore prices below competitive levels,” the commission said in a statement.
Chinalco is offering to invest US$12.3 billion in joint investments in aluminum, copper and ore mining with Rio Tinto, and to spend US$7.2 billion on convertible bonds in the company.
If redeemed for shares the bonds would almost double Chinalco’s existing 9.3 percent stake in Rio Tinto Group to 18 percent.
The Anglo-Australian miner’s board has backed the deal, which will help it deal with about US$40 billion in debt, mostly attributable to its purchase of Canadian aluminum producer Alcan Inc in 2007.
London-based Rio Tinto is the world’s third-largest miner but has been slashing production and jobs worldwide to lower its debt as the global financial crisis sharply erodes demand and prices.
The commission said it came to its decision after considering the “potential for vertical integration between Rio Tinto’s Australian iron ore operations and Chinese steel makers, based on the assumption that Chinalco and various steel makers are subsidiaries of the same parent entity and therefore have common commercial interests.”
The deal also faces a Senate inquiry that will examine opponents’ claims that it should be blocked because it would sell off Australian assets to a foreign government.
Swan has said the government welcomes foreign investment in Australia but that the Chinalco deal will only go ahead if it is in the national interest.
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