Chinalco: Might Sell Rio Tinto Stake To BHP

SYDNEY, Australia (AP) — The head of the Chinese company that recently bought a chunk of mining giant Rio Tinto said Monday it was a strategic investment, and hinted his company would consider selling to BHP Billiton if the price was right.

 

Xiao Yaqing, the president of Aluminum Corp. of China, was in Australia Monday for meetings with government officials and to brief journalists on the purchase, with Alcoa Inc., of 12 percent of London-based Rio Tinto PLC for US$14 billion (euro9.5 billion).

 

The purchase intensified market speculation about the prospects of BHP's US$130 billion (euro87 billion) informal bid to merge with Rio Tinto, a deal that would create a monolithic mining company and that Chinese officials have previously expressed concerns about.

 

Friday's announcement from Aluminum Corp. of China, known by the acronym Chinalco, and Pittsburgh-based Alcoa comes just days ahead of a Wednesday deadline set by British regulators for BHP Billiton to either formalize its proposal or walk away from the share-swap offer.

 

Sydney-traded shares of Rio Tinto Ltd. and BHP Billiton jumped as much as 3 percent in early trading before trimming some gains. Rio Tinto closed less than 1 percent higher at A$128.11; BHP Billiton ended 2 percent higher at A$39.32.

 

Rio Tinto is headquartered in London, but its shares are traded on bourses in both Britain and Australia, as are BHP Billiton stocks.

 

Aluminum Corp. of China shares also surged Monday, the first time they were traded in Asia since announcement of the Rio Tinto purchase. The shares rose the daily 10 percent limit to 32.34 yuan on the Shanghai Stock Exchange, where the main index rose more 8.1 percent.

 

Xiao said Monday Chinalco's decision to take a stake in Rio Tinto reflected his company's confidence in the global economic outlook, the future for metals demand and prices, and the ability of Rio Tinto's management to deliver value.

 

Asked if Chinalco would consider selling its stake as part of a BHP bid for Rio Tinto, Xiao replied, ''if we make money.''

 

''The objective of this investment is to make a return. So if the return is attractive ... we'll be happy,'' he said.

 

He said Chinalco had no current intention to increase its stake in Rio Tinto, and deflected a question about the possibility of breaking up Rio Tinto by saying he believed the company was well run as it is.

 

On Friday, Chinalco and Alcoa said they reserved the right to participate in a takeover offer for Rio Tinto within the next six months.

 

The purchase followed rumors that some Chinese entity might try to block BHP Billiton's unsolicited takeover bid for Rio Tinto, which Rio Tinto has rejected. Most of that speculation had centered on China's steel industry, which has a critical interest in the world iron ore trade.

 

Steelmakers in China, Japan and Europe have protested BHP Billiton's bid for RioTinto, contending that a takeover would give it too much influence over global iron ore supplies and pricing.

 

ABN Amro analysts said Monday the Rio Tinto purchase appeared aimed at similar concerns about alumina.

 

''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 Amro said in a note to clients.

 

Treasurer Wayne Swan confirmed that Chinalco had approached Australian regulator the Foreign Investment Review board about its interest in Rio Tinto, but refused to comment further.

 

Australian law requires approval for foreign companies to own more 15 percent or more of an Australian company, and for purchases by foreign government agencies at any level.

 

Swan, speaking to reporters in Canberra, said if he is required to make a decision on any Chinalco-Rio Tinto proposal he would take the national interest into account.

 

Rio Tinto became the world's biggest producer of aluminum and bauxite with its US$39.7 billion (euro28 billion) purchase last year of Canada's Alcan. Chinalco is China's biggest producer of both aluminum and alumina.

 

Chinese Foreign Minister Yang Jiechi was also in Australia this week, and would meet with Australian Prime Minister Kevin Rudd and his counterpart Stephen Smith on Tuesday for talks on security and trade ties, and other topics, Smith's office said in a statement.