Chinalco May Invest Up To $20 Billion in Rio Tinto Debt, Mines

Feb. 11 (Bloomberg) -- Aluminum Corp. of China, the nation’s biggest producer of the metal, may invest as much as $20 billion in Rio Tinto Group to gain more access to commodities, a person with knowledge of the matter said. Chinalco, as the company is known, is in talks to buy bonds that will convert into Rio shares and purchase stakes in Rio mines, the person said, declining to be identified as the details aren’t public. An announcement is planned for Feb. 12 when Rio publishes its annual earnings, the person said. Rio said last week it was in talks with Chinalco to raise cash by selling notes and parts of some units to reduce its $38.9 billion of debt. London-based Rio, which plans to sell assets and cut jobs and spending to lower debt by $10 billion this year, said Jan. 28 it was considering a rights offer. “Rio would get the cash they need and Chinalco would get greater access to the natural resources that they need,” Tobias Woerner, an analyst at MF Global Securities Ltd. in London, said yesterday by telephone. “Unless you think the China story is over, Chinalco are going to need those resources and this deal would deliver them at a potentially more attractive rate than only a year ago.” Rio gained 0.4 percent to A$49.15 at 11:02 a.m. Sydney time on the Australian stock exchange. This compares with a 3.3 percent decline in BHP Billiton Ltd. and a 1.7 percent fall in the benchmark index. Rio’s London-based spokesman Nick Cobban declined to comment when contacted by phone yesterday. A spokesman for Chinalco in London, who asked not to be identified, declined to comment. Bauxite, Alumina Chinalco may be interested in Rio’s bauxite and alumina assets at Weipa, Gove and Yarwun in northern Australia, Credit Suisse Group’s Sydney-based analyst Paul McTaggart wrote yesterday in a report. Bauxite is an ore refined into alumina, which is used to make aluminum. Chinalco, which is state-controlled, became Rio’s largest shareholder last year after acquiring a 9 percent stake. A possible sale of more stock to Chinalco may be blocked by the Australian government, UBS AG analysts led by Glyn Lawcock said in a report this week. Australia may limit ownership under the Foreign Investment Review Board regime to 15 percent, the analysts said in a report. Western Australia would not stand in the way of Chinalco increasing its stake in Rio, Premier Colin Barnett said in an interview. Chinalco got approval from Australian treasurer Wayne Swan in August to raise its stake in Rio from 9 percent to 11 percent. It wouldn’t to reapply to increase the stake beyond that level, he said. Rio’s Chairman-elect Jim Leng quit Feb. 9, less than a month after being named, citing a “difference of opinion” over the repayment of debt. To contact the reporters on this story: Brett Foley in London at bfoley8@bloomberg.net; Ambereen Choudhury in London at achoudhury@bloomberg.net