Australian Rio Tinto shares rise after China stake approved

SYDNEY (AFP) — Australian shares in Rio Tinto hit a three-week high and closed up more than 1.0 percent on Monday, after the government approved a China-owned company's acquisition of a strategic stake in the miner. Chinalco, with Alcoa Inc of the US, paid 14.1 billion US dollars for a 12 percent stake in Rio Tinto's London-listed shares, about 9.0 percent of the total group, in February. The purchase was widely seen as a move to block BHP Billiton's unsolicited takeover of Rio, one of its major rivals in the export of lucrative iron ore. On Sunday, Australian Treasurer Wayne Swan gave approval to Chinalco, or the Aluminium Corporation of China Ltd, to acquire up to 14.99 percent of Rio's London-listed arm, Rio Tinto PLC, or about 11 percent of the group. The news sent Rio Tinto's Australian-listed stock higher on Monday, with shares reaching a high of 124.64 Australian dollars before closing up 1.1 percent at 122.30 dollars. Shares in BHP Billiton, the world's biggest miner, fell 0.4 percent to 40.00 dollars. BHP has made an offer of 3.4 of its shares for every Rio Tinto share, which Rio has rejected as significantly undervaluing its company. The Australian competition watchdog, along with foreign anti-trust regulators and Chinese steelmakers, has voiced concerns at the proposed merger, which they fear could stifle competition and raise the price of iron ore. Analysts said while the Chinalco approval could provide a challenge to BHP's bid for Rio, the Chinese company's influence was limited. "It may perhaps allow them to express their views on the proposed takeover a little bit more loudly given that they are a major shareholder," Gavin Wendt from Fat Prophets told Dow Jones Newswires. "But as it stands their stake isn't big enough to influence the outcome and I don't think the government is going to allow them to raise their stake from here." Mining analyst Stephen Bartrop, a director at Stock Resource, said the Australian government also likely had concerns about a BHP-Rio merger. "We suspect the government is probably not that keen on it either," Bartrop told the Australian Broadcasting Corporation. "So in essence, by allowing Chinalco to lift their stake to... round about 11 percent of the combined group it's basically providing the opportunity that Tom Albanese of Rio can defend any hostile bid." But Bartrop said while Chinalco would now be able to block a hostile takeover -- which would require 90 percent approval -- they would be unable to block an agreed merger.