The Wall Street Journal-20080205-Chinalco Doesn-t Plan to Raise Rio Stake

Return to: The_Wall_Street_Journal-20080205

Chinalco Doesn't Plan to Raise Rio Stake

Full Text (559  words)

MELBOURNE, Australia -- Aluminum Corp. of China President Xiao Yaqing said the company has no plans to increase its stake in Anglo- Australian mining giant Rio Tinto PLC, and even dangled the possibility of selling its holding to Rio's potential suitor BHP Billiton Ltd.

The Chinese company, known as Chinalco, and U.S. aluminum giant Alcoa Inc. Friday disclosed they had jointly purchased 12% of Rio Tinto's London-listed shares at GBP 60 (US$117.97) apiece for a total outlay of US$14.1 billion. The stake accounts for 9% of the company when its Australian shares are taken into account.

That stake complicates the outlook for a BHP-Rio combination, which would create a mining giant with a firm hold on major supplies of key global raw materials such as copper and iron ore. Rio has said BHP's informal proposal to combine, in a stock transaction that would be valued at $130.03 billion, undervalues the company, and said yesterday there have been no talks between the two.

Mr. Xiao is on a visit to Australia that looks designed to soothe any local concerns about a Chinese government-owned entity taking a stake in Rio, which operates mines seen as important to the Australian economy.

The Chinese company has submitted a voluntary application to Australia's Foreign Investment Review Board for approval of its investment in Rio Tinto, but Mr. Xiao said this didn't mean it planned to purchase more shares in the miner.

"We do not have a plan to increase our stake in the company," Mr. Xiao said in Sydney.

Asked whether Chinalco would consider selling its stake to a third party like BHP, Mr. Xiao said this was a possibility. "If we made money and our investment creates value, and if [Alcoa's managing director of Australia] Alan Cransberg agrees, we might sell," he said through an interpreter.

However, such a deal looks unlikely given that Chinalco and Alcoa paid a 21% premium to Rio's closing price Thursday for the shares -- well above the value of BHP's three-for-one all-share takeover proposal. BHP has declined to comment on the move.

The U.K. Takeover Panel has given BHP until tomorrow to make a formal takeover offer or walk away for six months, something analysts said it would be loath to do now that Chinalco has appeared on the Rio Tinto register.

Chinalco said Friday that it had no plans for a takeover of the miner but reserved the right to make an offer if BHP formalized its takeover approach.

Mr. Xiao said yesterday the timing of the share purchase, coming ahead of BHP's planned offer, was a "coincidence" and described the purchase as a strategic investment in quality assets.

Analysts have mixed views on Chinalco's motivation. Some believe it wants access to Rio's aluminum assets. Others argue the move is designed to stymie a BHP takeover, which would create a powerful producer with greater sway over prices.

Chinalco and Alcoa are both buyers of alumina, which is used to make aluminum. ABN Amro analysts said the two companies are acting to prevent the creation of a player that could influence alumina prices.

"The reason Chinalco and Alcoa have teamed up to try and block the BHP offer for Rio is to prevent a structural change in the pricing of alumina," ABN said in a client note.

---

Yvonne Lee in Hong Kong contributed to this article.