Rio Tinto Shares Rise on BHP, Vale Bid Speculation

Rio Tinto Group, the world's third- largest mining company, rose in Sydney and London trading to more than a six-week high on speculation BHP Billiton Ltd. and Cia. Vale do Rio Doce may make a joint bid. BHP, the world's biggest miner, and Rio de Janeiro-based Vale, may have joined forces to work on a break-up bid for London-based Rio Tinto, the Financial Times said Sept. 4, citing market talk. Emma Meade, a spokeswoman for Melbourne-based BHP declined to comment. Rio Tinto spokesman Ian Head also declined to comment. "Rio owns some excellent assets, but it would be a huge deal, even for BHP," said Richard Scott, who helps oversee about $1 billion at Iimia Investment Group in Exeter, England. A five-year rally in commodities including industrial metals and iron ore, which Rio Tinto produces, stoked mergers and acquisitions in the industry. Rio, led by Chief Executive Officer Tom Albanese, is buying Canada's Alcan Inc. for $38.1 billion, which would create the world's largest aluminum producer. Rio Tinto, which trades in London and Sydney, rose A$3.30, or 3.5 percent, to close at A$99.00, the highest since July 24 on the Australian Stock Exchange. The shares rose 191 pence, or 5.4 percent, to close at 3,716 pence in London, the highest since July 24. The company's market value is $102.4 billion. Iron Ore "Bid speculation on Rio has been around for a while, and we believe this ties up with the story of demand for things like iron ore from China," said Richard Robinson, who helps oversee the equivalent of $1.8 billion at Jersey-based Ashburn Ltd. The benchmark price of iron ore, a steelmaking ingredient, may rise next year because of surging demand in China, making it the sixth straight annual increase, according to NMDC Ltd., India's biggest miner of the ore. "I wouldn't be short of the iron-ore area, or mining stocks in the current environment," said Robinson, who recently bought more Rio shares in his portfolio. Rio Tinto is the world's second-largest iron-ore exporter after Vale, while a combined company involving the three parties would have 40 percent of the market for iron ore transported by sea, said Luc Pez and Alain William, analysts at Societe Generale SA in Paris. "A bid for Rio Tinto would raise antitrust issues and carries high risk of value destruction," Pez and William said in a note to investors today. BHP probably won't try to acquire Rio because any offer may be perceived as hostile, while Vale management tends to try to expand its own businesses rather than grow through major acquisitions, the SocGen analysts said.