Rio rebuffs BHP, outlines growth plans

SYDNEY – Rio Tinto Ltd/Plc will spend US$2,4 billion on new mines, raise its dividend and generate billions of dollars from asset sales as it seeks to fend off a US$120 billion takeover proposal from larger rival BHP Billiton Ltd.

“While BHP may need Rio Tinto, Rio Tinto doesn’t necessarily need BHP,” Rio Chief Executive Tom Albanese told a media teleconference from London on Monday. “We believe that the value in Rio Tinto is yet to be fully reflected by the market.We have the people, execution capability and resources to work smarter, faster and better than our competitors.”BHP made public on November 8 its plan to take over Rio and forge a mega-mining group with a market capitalisation of around US$350 billion and control of much of the world’s iron ore, copper and aluminium.Albanese reaffirmed that he thought BHP’s bid fundamentally undervalued Rio, which he said was better placed to deliver value as a stand-alone firm.”The rise in global mineral demand is a trend that we expect to continue for decades driven by fundamental demographics and economic shifts, especially in developing economies like China and India,” Albanese said.Albanese said that with two new iron ore mines in Australia, total production should double to around 430 million tonnes by 2018.Rio would also shoulder more than half the cost of a more than half-a-billion-dollar diamond mine expansion in Canada.”It’s very clear that one of their key strategies is to pump up the iron ore volume as much as possible, which increases the competition issues,” said an analyst in Johannesburg who declined to be named.BHP has said it expected close scrutiny by regulators of any takeover, which would give the combined firm around a third of the seaborne iron ore trade.Steelmakers in Europe and Asia have said they would oppose any takeover.DIVIDEND The company was also raising this year’s total dividend by 30 per cent, with a further annual total increase of at least 20 per cent in each of the following two years.”The increase in dividend is cash into the shareholders’ pockets, that kind of puts pressure on the bidder to offer some cash as part of the deal,” the South African analyst added.Rio was targeting at least US$15 billion from asset sales in aluminium packaging acquired when it bought Alcan, the undeveloped Kintyre uranium mine and the Northparkes copper and gold lode, he said.Rio had previously given a target of US$10 billion.Rio approved additional funding of US$563 million for development of underground mining at its Diavik diamond mine in Canada, bringing the total investment to date to US$787 million.The investment will be funded 60 per cent by Rio and 40 per cent by venture partner Harry Winston Diamond Corp, Rio said.The Anglo-Australian miner also said it was not considering turning the tables in a so-called ‘Pac-Man defence’ and launching its own bid for BHP, as had been reported.”The first time I heard about Pac-Man was reading about it in the newspaper and it is not something I have given serious consideration,” Albanese said.The term ‘Pac-Man defence’ is a reference to a computer game popular in the 1980s where attackers can become the attacked.Since BHP made its intentions known, there has been speculation that Anglo American, Brazil’s CVRD and Xstrata might step forward with rival offers.Nampa-Reuters”We believe that the value in Rio Tinto is yet to be fully reflected by the market.We have the people, execution capability and resources to work smarter, faster and better than our competitors.”BHP made public on November 8 its plan to take over Rio and forge a mega-mining group with a market capitalisation of around US$350 billion and control of much of the world’s iron ore, copper and aluminium.Albanese reaffirmed that he thought BHP’s bid fundamentally undervalued Rio, which he said was better placed to deliver value as a stand-alone firm.”The rise in global mineral demand is a trend that we expect to continue for decades driven by fundamental demographics and economic shifts, especially in developing economies like China and India,” Albanese said.Albanese said that with two new iron ore mines in Australia, total production should double to around 430 million tonnes by 2018.Rio would also shoulder more than half the cost of a more than half-a-billion-dollar diamond mine expansion in Canada.”It’s very clear that one of their key strategies is to pump up the iron ore volume as much as possible, which increases the competition issues,” said an analyst in Johannesburg who declined to be named.BHP has said it expected close scrutiny by regulators of any takeover, which would give the combined firm around a third of the seaborne iron ore trade.Steelmakers in Europe and Asia have said they would oppose any takeover.DIVIDEND The company was also raising this year’s total dividend by 30 per cent, with a further annual total increase of at least 20 per cent in each of the following two years.”The increase in dividend is cash into the shareholders’ pockets, that kind of puts pressure on the bidder to offer some cash as part of the deal,” the South African analyst added.Rio was targeting at least US$15 billion from asset sales in aluminium packaging acquired when it bought Alcan, the undeveloped Kintyre uranium mine and the Northparkes copper and gold lode, he said.Rio had previously given a target of US$10 billion.Rio approved additional funding of US$563 million for development of underground mining at its Diavik diamond mine in Canada, bringing the total investment to date to US$787 million.The investment will be funded 60 per cent by Rio and 40 per cent by venture partner Harry Winston Diamond Corp, Rio said.The Anglo-Australian miner also said it was not considering turning the tables in a so-called ‘Pac-Man defence’ and launching its own bid for BHP, as had been reported.”The first time I heard about Pac-Man was reading about it in the newspaper and it is not something I have given serious consideration,” Albanese said.The term ‘Pac-Man defence’ is a reference to a computer game popular in the 1980s where attackers can become the attacked.Since BHP made its intentions known, there has been speculation that Anglo American, Brazil’s CVRD and Xstrata might step forward with rival offers.Nampa-Reuters