Chinalco not interested in bidding war for Rio Tinto

Despite its decision to join Alcoa in buying 12% of Rio Tinto’s stock, Chinalco said it has no interest in getting into a bidding war with BHP Billiton.

SYDNEY (Reuters) - 

Aluminum Corp of China (Chinalco) sought to douse speculation on Monday that it was preparing to mount a counter bid to BHP Billiton for Rio Tinto, saying it was happy to stick with the $14 billion stake it bought last week.

Chinalco President Xiao Yaqin told reporters in Sydney the purchase was a strategic investment and the Chinese company had no plans to interfere in Rio management.

Chinalco's 12 percent purchase, with the help of Alcoa Inc, came days ahead of a UK regulator's deadline on Wednesday for BHP to pitch a formal offer for Rio.

Rio has rejected BHP's initial offer of three of its shares for every Rio share, worth $123 billion based on current prices versus $139 billion when the proposal was pitched in November.

"We are satisfied with our 12 percent stake," Xiao said, speaking through an interpreter, adding that the timing of the share purchase was based on Rio's London share price at the time.

Xiao insisted the deal was more about extending state-controlled Chinalco's reach into diversified markets, such as iron ore and copper, where Rio is strong.

Chinalco paid 60 pounds a share, a 21 percent premium to Rio's London share price on Thursday. It said in a statement at the time it had no immediate plans to make an offer for all of Rio, though it reserved the right to do so if another party tabled a firm bid.

On Monday, Rio's Australian stock rose as much as 5 percent as investors reckoned Chinalco and Alcoa had ratcheted up the pressure on BHP Billiton to sweeten its own offer for Rio.

But fund managers said a deal still hinged on BHP's willingness to proceed. "It makes it more complicated for BHP, but it doesn't mean there's another bidder there. It really looks like these guys just want a seat at the table, maybe some assets," said Steve Robinson, a portfolio manager with Alleron Asset Management.

Rio stock closed up 0.6 percent at A$128.11. BHP was up 2 percent at A$39.32.

The move by Chinalco, one of China's big state-owned companies, comes as Beijing shows signs it may be ready to flex more of its financial muscle overseas after being pumped up by years of economic growth at home.

China Investment Corp, a sovereign wealth fund holding around $200 billion and China Shenhua Group, a coal miner, were in talks to buy a 15.85 percent stake in Australia's Fortescue Metals Group Ltd for about $2 billion, according to the South China Morning Post.

Fortescue would only say it was holding a number of talks with interested parties and that nothing had been concluded.

PLANS MORE BUYS

Xiao added that Chinalco planned more investments in Australia's resource sector, where it has already earmarked around $3 billion for bauxite mining and aluminium smelting in the Aurukun aboriginal region.

As foreign firms, Chinalco and Alcoa, as well as any Fortescue predator, would require clearance from the Australian government's Foreign Investment Review Board for a full offer.

"We believe there is still hope for a BHP scrip bid for Rio," ABN AMRO said in a report.

Rio's own acquisition of Canada's Alcan in November would mean a combined BHP-Rio would have a stranglehold on much of the world's supply of the aluminium-making ingredient alumina.

That could threaten other aluminium makers such as Chinalco and Alcoa, which may help explain the motive for buying up Rio stock, ABN AMRO said.

"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," it said.

Rio's chief executive Tom Albanese has repeatedly labelled BHP's offer as "two ballparks away" from true value. The deal is potentially the second-biggest takeover in history.

Marius Kloppers, BHP's chief executive, has argued the price is right and that the real value of a marriage would come via billions of dollars worth of savings from synergies in everything from iron ore and diamond mining to copper smelting.

"Whether the deal goes ahead or not still appears to be in BHP's court," Robinson said.

The Rio transaction marks China's biggest investment overseas to date -- Alcoa contributed only $1.2 billion. ($1=A$1.10) (Additional reporting by Denny Thomas; Editing by Jean Yoon)

SUBSCRIBE to Mineweb.com's free daily newsletter now.

Print story      Email story      Subscribe to free newsletter
Related Links ARTILCES:  Observer says Chinese government will challenge BHPB Rio Tinto bid  Chinalco/Alcoa stake in Rio will make BHP think twice about a bid  Chinalco/Alcoa stake in Rio Tinto gives huge boost to markets  OTHER PAGES:  BASE METALS AUSTRALASIA

Back