Chinalco may boost Rio stake if conditions suit

Chinalco’s president says the firm may increase its stake in Rio Tinto if market conditions are suitable but a timetable has not yet been decided.

SHANGHAI (Reuters) - 

Chinese aluminium maker Chinalco said on Monday it may increase its minority stake in Anglo-Australian miner Rio Tinto if market conditions are right, but has no timetable for such a move.

"Under the right market conditions, this is an option, it is possible. But we have not decided when. It will depend on the timing of opportunities in the market and our requirements," company president Xiao Yaqing told reporters in Shanghai.

"A key requirement for the company is to preserve its opportunities and possibilities as we become more international."

Chinalco, formed five years ago through the consolidation of more than 60 aluminium smelters, bought 12 percent of Rio's London-listed shares, or 9 percent of Rio Group's total equity, in January, jointly with U.S. aluminium firm Alcoa Inc

The companies have Australian government approval to raise their combined stake to 14.99 percent of the Rio shares, or around 11 percent of the Rio Group. Rio is listed in both London and Australia.

Rio Tinto is trying to fend off a $150 billion takeover bid from bigger rival BHP Billiton, which is awaiting clearance from Australian and European regulators, due later this year, before formally launching an offer.

Chinalco's Rio stake purchase was widely seen as a deliberate move to stymie BHP's bid, but Xiao gave no direct indications whether his company would oppose a takeover.

"We will say yes if we think it will yield positive results for us, and no if we don't think so," he said.

Rio's Sydney-listed shares fell 2 percent on Monday, while its London-listed stock was off 3 percent, compared with a 0.8 percent drop on London's benchmark FTSE 100 index

RESOURCE GLOBALISATION

China's booming economy has made it the world's largest metals and minerals consumer, and worries about resource shortages and rising prices have spurred Chinese firms to extend their reach to resource-rich areas from Africa to South America.

"People talk a lot about economic globalisation, but we are talking now about resource globalisation," Xiao said. "We are trying to obtain resources under fair laws and regulations from those lands that have been blessed by God, who allocated them unfairly."

Xiao, who also chairs Aluminum Corp of China Ltd (Chalco), which is controlled by Chinalco and is China's largest alumina and aluminium producer, said Chalco would welcome cooperation in its overseas projects from foreign players including Alcoa and Rio Tinto.

"It is very hard for Chinese companies to operate overseas ... Cooperation would help us to avoid risks and learn from our partners," he said, adding that many companies had expressed interest in the projects, but no deals had been struck.

Chalco signed a deal in May last year to invest $2.4 billion in the Aurukun bauxite project in Queensland, Australia, which will include an alumina plant with annual capacity of 2.1 million tonnes. It also agreed to pay $790 million for Peru Copper.

Xiao said the company's domestic bauxite projects now under construction would have annual capacity of about 10 million tonnes, with about 70 percent of that expected to be in production by end-2009.

He expected alumina prices to be volatile in the second half of this year while primary aluminium prices could fluctuate around 18,000 yuan ($2,628) per tonne, pressured by oversupply but potentially boosted if rising power prices restrict output.

The most-active November Shanghai aluminium futures contract ended at 17,460 yuan per tonne on Monday.

Chalco on Friday posted a near two-thirds drop in first-half net profit, hit by high production costs, output disruptions and aluminium oversupply.

The company's Hong Kong shares rose 1.14 percent on Monday, while its Shanghai-listed shares fell 3.7 percent, compared with a 3 percent drop on the benchmark Shanghai Composite Index. (Editing by Edmund Klamann; Editing by Ian Geoghegan)

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