Chinalco keeps vision of mining global resources

PUBLISHED : Saturday, 06 June, 2009, 12:00am
UPDATED : Saturday, 06 June, 2009, 12:00am

State-owned Aluminum Corp of China (Chinalco) will keep its dream of developing into a leading global diversified resources company alive despite the failure of its US$19.5 billion tie-up with Rio Tinto.

Rio yesterday scrapped the deal with Chinalco, its largest shareholder, choosing instead to raise US$15.2 billion in a rights issue and set up a joint venture with rival BHP Billiton.

Chinalco faced mounting opposition from shareholders and increasing political scrutiny in Australia, where Rio mines are considered a national strategic asset. Rising commodity prices also have placed Rio in less need of a cash injection from the mainland firm.

Rio will now sell 21 new shares for every 40 existing shares in London and Sydney at GBP14 (HK$174.09) and A$28.29 (HK$176.25) respectively, which could help it pay off debt from its acquisition of aluminium giant Alcan in 2007.

Rio's move is a serious blow to Chinalco as well as other mainland firms that have been keen to get their hands on natural resources to fuel China's rapid growth.

Mei Xinyu, a researcher at the Ministry of Commerce's Research Institute of Foreign Trade and Economic Cooperation, blamed the deal's failure on political sensitivities in Australia.

The failed deal is China's biggest unsuccessful foreign deal, topping CNOOC's US$18.5 billion bid for Unocal Corp in 2005, which was scuttled due to political opposition from Washington.

Rio chairman Jan du Plessis said the decision not to proceed with the Chinalco tie-up was based on commercial reasons, including a recovery in commodity prices and financial markets that had made a Chinalco deal less attractive.

'The financial terms of the Chinalco deal became markedly less valuable ... and our ability to raise a level of equity appropriate for our needs on attractive terms has improved considerably,' Mr du Plessis said.

Chinalco president Xiong Weiping said the company was 'very disappointed' and had worked hard to keep the deal alive and 'better reflect the changed market background'.

Mr Xiong said Chinalco's strategy of internationalising its mining business would not change. 'We intend to continue developing our global mining and search for strategic investment opportunities.'

Both Australia and China yesterday tried to minimise any political repercussions from the failed deal.

Australian Prime Minister Kevin Rudd denied any government interference and stressed the country's openness to foreign investment.

An official at the mainland's State-owned Assets Supervision and Administration Commission characterised the deal's failure as 'normal market behaviour'.

Rio's decision to reject the deal would not deter the 'go global' strategy of mainland companies, said Zou Jian, the chairman of the China Metallurgical Mines Association.

However, mainland firms will be more cautious in making overseas acquisitions.

Chinalco emerged as a suitor of Rio in February after a hostile takeover offer by the world's biggest miner BHP lapsed in November.

Under the scrapped deal, the Beijing-based firm would have doubled its stake in Rio to 18 per cent through convertible bonds and receive a minority stake in some of Rio's key mining assets. Rio said it would pay Chinalco a break-up fee of US$195 million to pull out of the deal.

Shares of Rio jumped as much as 13.23 per cent yesterday in Australia. The stock closed 8.36 per cent higher at A$72.49.

Chinalco's Hong Kong-listed flagship, Aluminum Corp of China, fell 2.07 per cent to HK$8.06 despite the Hang Seng Index rising 0.96 per cent.

Scrap heap

Rising commodity prices lead to Rio pulling out of deal

Chinalco will receive a break-up fee from the Australian miner of, in US$: 195m