Rio Tinto Shares Fall On Alcan Deal Worries

Shares in Rio Tinto fell 4.2% in Australia as some investors and analysts raised concerns the mining giant is paying too much too late in the cycle with its $38.1 billion takeover offer for Alcan. Citigroup, which has cut its rating for Rio to hold from buy, said it recognizes the Canadian group has quality bauxite and alumina assets, low-cost hydropower and leading-edge technology, but says there are still question marks over the deal. “We question why Rio has waited this long to move, given this deal could have been done two years ago at half the price,” Citigroup analysts said in a client note. ABN Amro has also cut Rio to hold from buy and said that, while it recognizes the deal is accretive in the first year, very favorable aluminum market conditions will be needed to make it pay off in the long term. Investors also voiced concerns that Rio Tinto may have paid too much at the top of the cycle. Equity Trustees portfolio manager John Guadagnuolo said many shareholders have invested in Rio Tinto for its copper and iron ore earnings and are worried the miner has “bet the house” on a big drive into aluminum despite an uninspiring mid-term outlook for the metal.