Rio bosses try to placate shareholders over Chinalco

Rio Tinto’s chiefs have tried to placate the company’s British shareholders over the mining giant’s controversial $US19.5 billion ($A27.1 billion) investment deal with Aluminum Corporation of China (Chinalco). Many of Rio’s British shareholders have expressed anger at the state-owned Chinese group taking an 18 per cent interest in the company and a suite of its mining assets. Fronting about 200 shareholders at the company's annual general meeting in London last night, chairman Paul Skinner and chief executive Tom Albanese played down concerns about the proposed deal. Skinner insisted Rio was listening to shareholders’ concerns. “We fully understand the weight of shareholder opposition,” Mr Skinner told shareholders. “We are listening very carefully to all that is being said to us on this point. “We continue to believe that the transaction... is most decidedly in the economic interests of shareholders.” Several shareholders at the meeting expressed a range of concerns about the deal, which Rio hopes will help it pay off billions of dollars worth of debt it built up after buying Canadian aluminium producer Alcan two years ago. Some major shareholders fear the deal will dilute their stakes in Rio and have threatened to block it from going ahead. Some of Rio's shareholders are worried that if the Chinalco deal goes ahead the Chinese company would exert too much control over the Anglo-Australian company. Others argue they would prefer Rio pursue a rights issue to raise the money it needs to pay down its debt. There are also concerns about whether Rio Tinto is getting a good price in the Chinalco deal and a fair premium for the convertible bonds. One shareholder at the London meeting accused Rio of “selling part of the company silver” and “mortgaging parts of Rio Tinto to China”. He urged the company to instead consider a rights issue. Why have you as a board got us into this mire,” he asked, to applause from fellow shareholders. “In my view, (the Chinalco deal) seems misguided and not good enough.” Mr Skinner said the company had considered a range of options, including a rights issue and asset sale, before deciding that the Chinalco deal was the best way forward. He said, given the global economic environment, the decision to team up with Chinalco was the best option. “It remains in the view of the board our preferred option,” he said. Mr Albanese said the capital injection from Chinalco would help Rio continue with its plan to sell off a range of assets to help reduce its $A54 billion worth of debt. He also reassured investors that Rio would continue to fully control all its operations if the Chinalco deal went ahead. “The Chinalco package gives us much greater protection against further potential downside risk in the global economy,” Mr Albanese said. “It covers two major debt repayments over the next two years, it offers substantial premiums for our assets, and the bonds we are proposing have a conversion price at a premium well above current share prices. “For these reasons we intend to take this transaction through the Foreign Investment Review Board in Australia as well as other regulatory processes before presenting it to you for shareholder approval.” Mr Skinner said that with hindsight Rio Tinto had bought Alcan at a time when aluminium prices were much higher than in today's market. However, he said, Rio was on track to deliver $US1.1 billion after tax in savings by merging Alcan’s operations with Rio by the end of 2010. Skinner said China’s economic growth would remain the key to driving commodity prices and that it was expected that investment in China would gain strength later this year. But Rio did not expect the global economy to recover for another 12 to 18 months, which could help metals and minerals demand pick up. Shareholders will vote on the Chinalco deal at a special meeting due to be held in mid 2009.