Rio says committed to Chinalco tie-up

SYDNEY – Miner Rio Tinto remains committed to a planned US$19,5 billion tie-up with Chinese metals firm Chinalco, it said, responding to talk that the deal may be revised to let more shareholders take part in a rights issue.

The latest endorsement of Chinalco, already Rio’s largest shareholder, also comes amid speculation the Australian government could demand revisions, or kill the deal under foreign investment guidelines because Chinalco is state-owned.
Rio Tinto shares closed 7,4 per cent higher at A$61,88 in Sydney on Friday, recouping some of a previous heavy slide on market talk it might renegotiate the most controversial part of the deal – a US$7,2 billion issue of convertible bonds to Chinalco.
London shares, which have surged 77 per cent this year, gained 2,78 per cent to 2,666 pence, in line with the UK mining index.
Speculation had focused on whether Rio would tweak the bonds issue to make it available to all Rio shareholders, not just Chinalco, or on whether the deal could be scrapped and another strategic investor brought in, perhaps rival miner BHP Billiton.
‘The company remains committed to delivering this strategic partnership,’ Rio Tinto said in response to a query from the Australian stock market over the movements in its share price.
The deal as it stands would double Chinalco’s Rio stake to 19 per cent.
POSSIBLE REVISED DEAL
The Australian Financial Review newspaper said on Friday Chinalco would consider changing the terms of the convertible bonds, but was adamant the other major element of the tie-up – US$12,3 billion in direct investments in key Rio mining assets – should remain as agreed in February.
Citing no sources, the business daily said Rio Tinto’s director of strategy, Doug Ritchie, was believed to have visited Chinalco officials last week to discuss investors’ opposition to the deal and possibly to revise the terms of the bond issue.
Chinalco President Wang Wenfu was believed to be pragmatic over the price of the notes, the newspaper added.
Analyst Michael Rawlinson at Liberum Capital in London said Australia’s Foreign Investment Review Board (FIRB) might provide the opening for a rejigged deal.
‘If Chinalco can renegotiate, how to do so without losing all important face? One renegotiation driver could be the FIRB,’ a note said.
‘Waiting until the FIRB has put in some conditions on a deal could allow the two sides to re-cast a deal that addresses both shareholder and FIRB issues.’
The Review said the FIRB was expected to seek changes to the Chinalco deal, including limiting the size of its equity stake to 14,99 per cent and asking Chinalco to forgo one of two Rio board seats it is seeking.
The FIRB is expected to make its recommendations to Treasurer Wayne Swan by June 14. Swan has the final decision.
In a report on Thursday, investment bank UBS said BHP Billiton might offer to help underwrite a Rio Tinto rights issue and propose an iron ore joint venture.
A BHP spokesman declined to comment. BHP shares rose three per cent to A$33,29 on Friday.
Also on Friday, Rio Tinto said the U.S. Committee on Foreign Investment had cleared the Chinalco deal.
But two major hurdles remain to the deal: Australian foreign investment approval and separate approval from Rio shareholders, neither of which is assured. -Nampa-Reuters