Rio Tinto Likely to Calm Investors, Liberum Says

Feb. 24 (Bloomberg) -- Rio Tinto Group, the world’s third- largest mining company, is likely to calm “dissident” investors over their concerns about the terms of a $19.5 billion investment from Aluminum Corp. of China Ltd., Liberum Capital Ltd. said. The “initial shock and anger” among some shareholders that their so-called pre-emption rights were being ignored is “dissipating,” said Michael Rawlinson, head of mining and energy at Liberum in London, who cited a meeting with Rio Chief Executive Officer Tom Albanese yesterday. The deal will be approved by investors, “though probably not” in its current form, Rawlinson wrote today in a report. Rio’s plan has been criticized by Legal & General Plc, the mining company’s second-largest institutional shareholder, which said Feb. 14 Rio should put forward an alternative fund-raising proposal to be considered by all investors. Shareholders were “deeply concerned” by the deal, the Association of British Insurers, representing 400 institutional investors, said Feb 13. “Curiously enough if the markets continue to sag, the better this deal looks,” Rawlinson wrote. “It is also clear that should markets deteriorate from here the Chinalco deal undoubtedly brings greater downside protection and will turn out to have been the correct choice as taken by the board.” Rio closed 36 pence, or 2 percent, lower at 1,787 pence in London trading. It has dropped 9.2 percent since Feb. 11, the day before Rio confirmed the Chinalco deal. The London Metal Exchange Index, which tracks six metals on the bourse, has dropped 7 percent in the same period. ‘Too Optimistic’ Some investors are “still angry with Rio for being too optimistic at the top of this cycle” with its $38.1 billion purchase of Canadian aluminum maker Alcan Inc. in 2007, and now they “fear Rio are being too cautious at the bottom,” Rawlinson said. The Chinalco investment will allow London-based Rio to meet $10 billion of debt repayments due this year. A shareholder vote is scheduled for the second quarter. State-owned Chinalco will buy $7.2 billion of convertible bonds and pay $12.3 billion for stakes in Chilean, U.S. and Australian projects. Chinalco, already Rio’s largest investor, would raise its stake to 18 percent by converting the debt. In addition to the Chinalco deal, Rio can still discuss with its bankers separate fund raising and refinancing, according to the implementation agreement posted on Rio’s Web site. “This is a detailed legal agreement that ensures we have flexibility in the normal course of business,” Nick Cobban, a London-based Rio spokesman, said today by telephone. He declined to comment on the Liberum report or comment further on the implementation agreement. To contact the reporters on this story: Brett Foley in London at bfoley8@bloomberg.net; Jean Chua in London at jchua4@bloomberg.net