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Chinalco to hike Rio Tinto stake

By Jiang Wei (China Daily)
Updated: 2009-02-13 08:22

Aluminum Corp of China (Chinalco) has proposed injecting $19.5 billion into London-based Rio Tinto Ltd, one of the largest mining corporations in the world.

If approved by shareholders and relevant governments, the proposed deal would be the largest overseas investment by a Chinese company in history.

Chinalco proposed to buy $7.2 billion of convertible bonds from Rio and stakes in iron ore, copper and aluminum projects for $12.3 billion, the company said yesterday in a press release. The proposal would result in the State-owned company's stake in Rio increasing to 18 percent from the current 9.3 percent.

Related readings:  Chinalco says to invest US$19.5b in Rio Tinto  Rio Tinto in asset sale talks with Chinalco  China resource industry sees opportunity amid global crisis  Chinalco cut prices by 23%

Chinalco's investment would go to Rio projects around the world, including Escondida copper and LaGranja copper in Chile, Grasberg copper in Indonesia, Kennecott Copper in the United States, and Yarwun aluminum, Weipa aluminum and Hamersley Iron in Australia.

"Commodity prices are at historical low levels and it will benefit China to secure key resources now," said Peng Bo, an analyst at Ping An Securities Co.

He added the move may help Chinalco lay the foundation for becoming an international mining giant - the long-term goal of the company.

Chinalco's president, Xiao Yaqing, said: "The deal, which follows our acquisition of a significant stake in Rio Tinto in February 2008, also shows Chinalco's confidence in China's economic growth and commodity markets."

Chinalco's proposal was "far superior" to other options Rio's board considered, and represented "better value" compared with BHP Billiton Ltd's offer, Rio CEO Tom Albanese was quoted by Bloomberg News as saying. He rejected BHP's $66 billion bid to take over Rio last year.

Chinalco's investment is a huge boost for the London-based company, which is aiming to pay back about $10 billion of its $38 billion debt by the end of 2009 by axing some 14,000 jobs worldwide, selling assets and cutting spending.

The transaction is still subject to approval from Rio's shareholders and the Chinese, Australian, Canadian and US governments.

After the deal, the two sides would establish joint ventures to supervise projects in which Chinalco holds a stake. Chinalco would appoint two non-executive directors to the miner's board.

Rio would enter into exploration in China in partnership with Chinalco.

Share price of Chalco, the listed arm of Chinalco, jumped 5.64 percent to 10.49 yuan yesterday in Shanghai trading. Its shares in Hong Kong declined 4.77 percent to HK$4.19.