Chinalco may revise Rio deal before deadline: sources

MELBOURNE – Chinese state-owned metals firm Chinalco may revise its planned US$19,5 billion investment in miner Rio Tinto before a June 14 deadline to avoid further delays in Australian government approval, two sources close to the deal said yesterday.

Any changes would address concerns raised by both Canberra and Rio Tinto shareholders over the biggest overseas investment by a Chinese company.’I think they’ll (Chinalco) come out and make an announcement before the deadline,’ an investment banker with direct knowledge of the deal told Reuters.’There’s a lot of things on the table and there’s a lot of frustration, and I think Chinalco are getting to the point where they want to make an announcement sooner rather than later, probably next week,’ the banker said.One news report even said the deal may be off and traders speculated Rio may replace it with a rights issue.Australia’s Foreign Investment Review Board (FIRB) is due to give its recommendation on the deal to Treasurer Wayne Swan by June 14. Swan has the final say on whether it will go ahead.’If there was a chance the deal needs to be amended, the companies would notify FIRB of that before a FIRB decision on the current application,’ said another source close to the deal.’There would be no point getting something through FIRB only to have it rejected by shareholders,’ he said.Neither source wanted to be identified due to the sensitive nature of the negotiations.As the deal stands, Chinalco would pay US$12,3 billion for stakes in debt-saddled Rio’s key iron ore, copper and aluminium assets and US$7,2 billion for convertible notes that would double its equity stake in Rio to 18 per cent.Rio Tinto’s shares in London fell 2,5 per cent to 2,839 pence by largely in line with a weaker UK mining index. Rio shares in Sydney closed down 6,6 per cent yesterday, while bigger rival BHP Billiton fell 5,2 per cent. SHAREHOLDER OPPOSITIONThe deal has run into opposition from Rio shareholders, who have complained it favours Chinalco over other shareholders, and from some who are worried that China, Rio’s biggest customer, will gain influence over pricing of key commodities like iron ore.A report by Dow Jones in Hong Kong quoted a person familiar with the deal saying that Rio may scrap the Chinalco deal and was to hold a board meeting yesterday to discuss it.Rio spokesman Nick Cobban in London declined to comment on the report and Chinalco had previously declined to comment.Analyst Michael Rawlinson in London said he doubted Rio would cancel the deal after new Chairman Jan du Plessis recently consulted with shareholders about possible revisions.’The Rio board is totally committed and wants to push this through. Post the recent round of presentations with investors, Du Plessis thinks he’s got the shareholders there if they can get the requisite amendment to the terms,’ he said.Rio and Chinalco have probably been consulting with Australia’s FIRB behind the scenes to get a sense of what would be acceptable to regulators, he added.Peter Chilton, an analyst with Constellation Capital Management, which owns Rio Tinto shares, said a revised deal may reduce the bond issue to Chinalco, limiting its stake to 14,9 per cent, and would include a rights issue to all Rio Tinto shareholders.Noise around the deal comes as China’s steelmakers hold out for steeper price cuts on iron ore contracts from major miners than the one-third price cut Rio has already agreed with Japanese, South Korean and Taiwanese mills.-Nampa-Reuters