miningmx

Chastened Rio stands by Chinalco deal

Reuters | Mon, 20 Apr 2009 07:36
Share
[miningmx.com] -- Global miner Rio Tinto defended itself on Monday against shareholder criticism of its proposed $19.5bn tie-up with China's state-owned Chinalco, its rejection of a takeover bid by BHP Billiton and its costly 2007 purchase of Alcan.

At the group's annual meeting in Sydney, following one in London last week, outgoing chairman Paul Skinner said BHP Billiton's 3.4-for-one share offer never recognised Rio Tinto's value and the group admitted it had paid too much for Alcan.

"We now live in a world in a different state," he told angry shareholders. "The Chinalco proposition is the best value proposition available to Rio Tinto today."

Rio's shares slid 4 percent on Monday, but that followed a 54 percent gain over the past three months, nearly 8 times better than the broader market as investors were encouraged that the Chinalco deal would help Rio cut half its $38bn in debt.

"It's been a tremendous performer in the past few months. People are just taking some profit ahead of the AGM today, since there's likely to be a lot of negative news articles about the Chinalco deal," said fund manager Tim Schroeders of Pengana Capital.

Prolonged price talks over iron ore, Rio's most profitable product, also weighed on its share price.

"There was some press this morning that the iron ore negotiations may get stretched out longer than anticipated and therefore that would be providing a level of uncertainty, which is probably not going to work favourably for the producer in the short term," said Jamie Spiteri, senior dealer at Shaw Stockbroking.

Rio and BHP are locked in talks with Asian steelmakers to settle iron ore prices for April 2009-March 2010. Steel mills want a quick settlement with a steep cut in annual prices, but the miners are holding out amid signs of an economic recovery.

Rio Tinto shares last traded down 4.4 percent at A$56.50, while BHP's shares were down 2.4 percent at A$32.62, helping to drag the broader market down 1.1 percent.

RIO STANDS BY CHINALCO

Major investors have complained that the Chinalco deal favours one shareholder over others, but they are starting to recognise it is the best option for slashing debt.

The deal would give China's top aluminium maker $12.3bn worth of stakes in Rio's iron ore, copper and aluminium assets and $7.2bn worth of convertible debt that could double its stake in the group to 18 percent.

"People are becoming educated about the prices (Chinalco is paying) and the repositioning of the company with less debt and growth options," said Schroeders.

There was also media speculation that BHP had held informal talks with Rio over the weekend, but fund managers said this was not behind the fall in Rio's share price.

BHP refused to comment on Monday on the speculation cited by broadcaster CNBC that it and Rio had held informal talks.

"They are always talking, but I wouldn't call the talks 'formal'," an investment banker with direct knowledge of the Chinalco-Rio deal told Reuters.

The speculation has been swirling for several weeks, sparked by questions on whether the Chinalco deal would go ahead in the face of political concerns about Australian resource assets falling into the hands of the Chinese state.

Pengana's Schroeders put a low probability on BHP doing anything with Rio in the next 12-18 months, saying conditions had not changed enough since it pulled its bid last November blaming weak commodity markets, Rio's debt and its inability to sell off assets.

Any talks now would have to focus on specific assets, or possibly a rights offer, as under UK takeover regulations BHP cannot revive a full takeover bid until November.

But Rio is focused on the Chinalco deal.

"I think potentially we are on the threshold of an exciting new partnership," Skinner said.



special reports
News Alert! Subscribe to our Free News Alert
Most Read
Commented
Ed's Choice
  1. » Friedland gets Ivanplats IPO away for $307m
    by David McKay | 23 Oct 2012 18:01
  2. » Eskom’s R284bn coal spend is thin end of wedge
    by David McKay | 23 Oct 2012 16:28
  3. » Eskom itching to start nuclear programme
    by David McKay | 17 Oct 2012 13:11
  4. » AEMFC readies for second mine as losses mount
    by Andre Janse van Vuuren | 18 Oct 2012 15:38
  5. » Lonmin, Holgoun deal is in bad faith
    by David McKay | 12 Oct 2012 11:08
More Archive news
multimedia

Multimedia

LATEST PODCAST | Clear as mud | 07 Jun 2011 - › More
Mining law expert Peter Leon gives his take on the increasingly complex wrangle over Sishen mine. ... Listen ›
RADIO WRAP | More ›
  • › Gold One can sit out a long strike - Froneman |
  • › First Uranium rescue plan good for Simmers too - Bernard Swanepoel |
  • LATEST PODCAST | July 30 podcast | 30 Jul 2010 - › More
    Neville Nicolau, CEO Anglo Platinum We get an update on AngloPlat from CEO Neville Nicolau and dissect ArcelorMittal SA’s full year numb ... Listen ›
    RADIO WRAP | More ›
  • › Gold One can sit out a long strike - Froneman |
  • › First Uranium rescue plan good for Simmers too - Bernard Swanepoel |
  • podcastsPodcasts
    Big opinions by big guys.
    RSSRSS Feeds
    News delivered really simply.
    jobsJobs
    Current listings.
    eventsEvents
    Current listings.
    jseJSE Listed stocks
    Real time resources data.
    special reportsFREE News Alert!
    Subscribe to our News Alert