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Rio Tinto says unaffected by market plunge
David McKay
Posted: Sun, 09 Sep 2007

[miningmx.com] -- THE credit crisis was resulting in a slowing of the US housing market but this was “more than offset” by stronger demand growth in China, said Tom Albanese, CEO of Rio Tinto, the London-listed mining group.

“We’re seeing no ill effects in the markets Rio works in,” said Albanese in an interview. “In difficult markets, we see a flight to quality.”

Rio Tinto closed 3.28% lower on Friday (September 7) following a volatile week in which the company was speculated to be attracted the attention of BHP Billiton and CVRD, a Brazilian mining group.

Global stock markets tumbled on Friday on fears the US economy was facing a sharp slowdown. This followed data showing the first fall in monthly employment in four years raising the prospect of an interest rate cut.

In New York, the Dow Jones Industrial Average fell 1.9% to 13,113.15 while the S&P lost 1.7%. In London, the FTSE 100 fell 1.9% to 6,191.2, below its starting level for the year while the dollar was almost at its year low, recorded in July.

Earlier in the week, the US reported a 4,000 increase in its jobless numbers when analysts were forecasting an increase in employment. The prospect of global economic problems were ignited earlier this year amid the so-called sub-prime crisis.

Rio Tinto last month bought Canadian aluminium producer, Alcan, in a deal worth $38.1bn (£18.8bn) which some analysts said had factored in an aluminium price at levels much higher than at present.

“We won’t see a reversion in the aluminium price that some brokers assume,” said Albanese who added that the price of the metal was “much higher” than the company expected two years ago.

The aluminium market was likely to be supported by 15% year-on-year growth in aluminium demand in China until about 2011. Global demand growth for aluminium was expected to be 5%/year, Albanese said.

“The bid for Alcan was tied to the fortunes of Chinese smelting,” said Albanese. The cost of smelting was increasing in China as it strove to access more power and bauxite, the ore from which alumina and, finally, aluminium is produced, Albanese said.

Albanese said that despite the credit crisis, Rio Tinto had experienced no problems in structuring a $40bn loan from banks, the UK largest and the fourth largest in the world, to finance its takeover of Alcan. Rio Tinto is rated A+ by Standard & Poor’s and Aa3 by Moody’s. Four lead banks put the loan together: Deutsche Bank, Royal Bank of Scotland, SocGen and Credit Suisse.

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Paul Skinner, chairman of Rio Tinto, said the company’s successful offer for Alcan had been “created by a competitive bidding situation”, and said the takeover was completed with an eye to the long-term. “We looked at this on a very long-term horizon basis,” said Skinner. “It will play out over the very long term.”

Commenting on Alcan, Albanese said it had “raised the bar” for the company’s other divisions which would be subject to procedural reassessments.

“With Alcan, we will look at the full range of our business to determine which would fit our best interests. For example, does the business have a tail of assets? We will look at each individual sector,” he said.

In August, Rio Tinto reported its first fall in profit in four years with a 6% drop in the first half of its financial year including a write-down on its Argyle diamond mine in Australia.