Rio Tinto Group

Australian competition watchdog gives Chinalco's Rio deal all-clear

PUBLISHED : Thursday, 28 February, 2008, 12:00am
UPDATED : Thursday, 28 February, 2008, 12:00am

Australia's competition body says it will not block the US$14 billion purchase of a stake in mining giant Rio Tinto by Aluminum Corp of China (Chinalco) and Alcoa, easing fears the deal could face regulatory hurdles.

The Australian Competition and Consumer Commission began an informal review into the 12 per cent stake purchased in Rio by Chinalco and Alcoa on February 1.

But yesterday the ACCC said: 'Given the nature and extent of the interest acquired, the acquisition is unlikely to lessen competition.'

Foreign investment in the mining industry is a political hot button in resource-rich Australia, especially now that the mainland has become an aggressive bidder for mining and energy companies around the globe.

State-owned Chinalco teamed up with United States-based Alcoa to become the largest shareholder of Rio, five days before BHP Billiton increased its takeover offer for the world's No.3 mining company.

The deal was widely seen as an attempt by Beijing to scupper a merger between BHP and Rio, which could create a giant company that controls a third of the world's iron ore market, 25 per cent of the uranium market, and millions of tonnes of copper and coal.

The Australian competition regulator's decision was expected, given that it only involved a 12 per cent stake, Tung Tai Securities associate director Kenny Tang Sing-hing said.

'It is Chinalco's strategy not to buy a major stake, say over 20 per cent, to avoid potential political resistance,' Mr Tang said.

Chinalco and Alcoa were prepared to buy a bigger stake in Rio than the 12 per cent holding they eventually bought last month, according to a legal document that shed more light on the transaction.

The companies had proposed acquiring 14.9 per cent of the Anglo-Australian firm, according to a disclosure filed by Rio with the Australian Stock Exchange.

In an interview with Caijing magazine earlier this month, Chinalco president Xiao Yaqing said the acquisition was purely a commercial decision and any further purchases would depend on circumstances.

BHP's hostile takeover bid touched a raw nerve among Asian and European customers of BHP and Rio, especially steel mills on the mainland and in Japan, which import hundreds of millions of tonnes of iron ore annually and fear losing their clout in pricing of raw materials.

'As Rio's largest single shareholder, we and Alcoa of course have a say and we will certainly protect our interests,' Mr Xiao said in the interview.

Green light

Chinalco and Alcoa had earlier proposed bidding for a stake in Rio Tinto of 14.9%