Chinese company to increase its stake in Rio Tinto
Updated
China's biggest aluminium producer is set to increase its stake in resources giant Rio Tinto.
Chinalco is expected to inject nearly thirty billion dollars into the cash strapped company by buying mines and shares. The deal is expected to be announced later today when Rio Tinto releases its annual profit results. The Chinese company already owns nine percent of Rio and will need Australian goverment approval to increase its stake beyond 15-percent.
Presenter: Sue Lannin
Speaker: Steven Pope, from Cantor Fitzgerald in London
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STEPHEN POPE: I think it is certainly a short term solution to the problems and if they actually find that they are working in cooperation with a friendly investor partner as against as an aggressive perhaps looking for acquisition style partner, then it does help them and it should be a beneficial movement into the medium and long term.
SUE LANNIN: But isn't Rio Tinto selling off its best assets to pay for a bad investment - the takeover of aluminium producer Alcan?
STEPHEN POPE: I think pretty obviously what they will be looking at is saying what would have happened had the BHP deal gone ahead? And that combined company probably would have to let other aluminium investments go. And that is where I think the Chinese would have been first in the queue to pick things up.
So they are probably thinking what is the way forward that we can benefit the core business opportunities for Rio? And whilst you could say short term the selling off of the royal crown jewels of the operation, I think is a question of ensuring long term survival.
SUE LANNIN: Chinalco is also expected to buy convertible shares in Rio so at the moment they own nine per cent of the company. How much could they take under this deal?
STEPHEN POPE: Well I think this will probably push them up towards the 20, 25 per cent mark. I think if they go much further towards 30, then people would start becoming very concerned that this is becoming an over-burdensome partnership that they are undertaking with Rio and maybe people would say, well, the Chinese are trying to get into the mining industry through the back door.
So I think that probably they don't want to go too far beyond say 25 per cent is the top level.
SUE LANNIN: How important is this deal for China?
STEPHEN POPE: Generally speaking I think the Chinese have been caught out before in the copper market where they had low inventories and no real access to direct supply. So in this way they try to think that we have a lot of infrastructure building to do. We know that steel and also aluminium are a very important part of that ability to undertake the infrastructure and build a world class economy.
So I really think they are just looking after their long term interest and showing very strong strategic planning.
