Mon, Aug 25, 2008 page10

• Chinalco may raise stake in Rio Tinto

  ULTERIOR MOTIVES? The Aluminum Corp of China has said it originally bought into Rio to diversify, but Australian reports say it may be trying to block a takeover by BHP

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  Aluminum Corp of China (中國鋁業), or Chinalco, got Australian approval to raise to 11 percent its stake in Rio Tinto Group, the target of a hostile US$143 billion takeover by rival miner BHP Billiton Ltd.

  “I have decided to raise no objections under Australia’s foreign investment policy,” Wayne Swan, federal treasurer of Australia, said yesterday in a statement. Chinalco, in partnership with Alcoa Inc, bought a 9 percent stake in London-based Rio in February and said in March it may seek to increase that holding.

  The bid by China’s biggest aluminum producer may make it more difficult for Melbourne-based BHP to succeed in its all-stock takeover offer for Rio, the world’s third-largest mining company.

  Chinalco may be seeking to increase its stake to block that deal, the Australian Financial Review reported on Aug. 12.

  “This will underpin the Rio share price and also create uncertainty about whether or not BHP will get its deal over the line,” Stephen Bartrop, a resources analyst and director of Sydney-based Stock Resource, said by phone yesterday. “Even if Chinalco doesn’t increase its stake, it shows they have the capacity to block the deal.”

  BHP closed 3.1 percent higher at A$40.15 (US$34.88) on Friday on the Australian stock exchange and Rio gained 0.7 percent to £51.79 (US$96) on the London Stock Exchange. Rio’s stock is 14 percent below the £60 a share price paid by Chinalco and Alcoa when they bought their stake.

  Liu Qiang (劉強), Chinalco’s secretary, couldn’t be reached on her mobile phone for comment. Rio spokeswoman Amanda Buckley also couldn’t be contacted.

  “While Australia welcomes foreign investment in our economy, we will carefully examine national interest issues where these arise in relation to foreign sovereign ownership,” Swan said.

  Chinalco will have to reapply to increase its stake beyond the level approved yesterday, and has agreed not to seek representation on Rio’s board, Swan said.

  BHP chief executive officer Marius Kloppers wants the Chinese company’s support for his deal, which would create the world’s biggest producer of aluminum and energy coal.

  Chinalco was a guest of BHP at the Olympic Games in Beijing this month, and Kloppers said last Monday that he couldn’t comment on individual shareholder discussions.

  Swan’s approval yesterday enables Chinalco to hold as much as 14.99 percent of Rio’s London shares, equivalent to 11 percent of the mining company’s combined Australian and London equities. Chinalco was in talks with Alcoa Inc to consider raising their holdings, chairman Xiao Yaqing (肖亞慶) said on March 18.

  Chinalco said in February it bought the stake to diversify into other metals and as part of a strategy to secure resources. It may want to secure any alumina or aluminum assets that may be sold off if BHP buys Rio, Stock Resources’ Bartrop said.

  “It could do a soft deal with BHP and vote for the merger in return for securing the assets,” he said.

  Chinese companies are making more acquisitions to help feed an economy that’s grown at more than 10 percent a year since 2001. Chinalco bought Peru Copper for US$860 million last August.

  Chinalco and Alcoa bought the stake in Rio in a surprise raid just five days before BHP increased its takeover offer for Rio in February. Rio rejected that offer as too low.

  China’s steelmakers have said a combination of BHP and Rio would exert too much power in the iron-ore market, and other analysts have speculated Alcoa still is interested in the aluminum assets Rio acquired when it took over Canada’s Alcan Inc last month, topping Alcoa’s hostile offer.

  Alcoa can force Chinalco to buy it out of the joint investment, New York-based Alcoa said on April 25. Under the companies’ Shining Prospect Pte venture, Alcoa can compel Chinalco to purchase its portion of the stake at market rates after a six-month period expires. Alcoa contributed US$1.2 billion to the US$14 billion investment.
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