Rio Tinto defends Chinalco deal to shareholders

SYDNEY (AFP) — Rio Tinto's chairman defended the firm's tie-up with Chinalco to angry shareholders Monday, calling it the best way to get badly needed funds and playing down worries over China's influence here. Amid deep scepticism at Rio's annual general meeting in Sydney over the 19.5 billion US dollar deal, outgoing chairman Paul Skinner said Chinalco's investment would shore up the debt-laden mining giant's balance sheet. "The potential partnership with Chinalco will strengthen our position during this period of extreme uncertainty," he said of the deal, which will be China's largest ever foreign investment if the Australian government approves it. "It provides the most comprehensive solution to the immediate and medium-term financing challenges we face. "We believe this is the best option going forward and we are resolved to carry this through." The deal would see Chinalco double its stake in Rio to 18 percent, taking two seats on the Rio board and stakes in its aluminium, bauxite, copper and iron ore projects. But there has been political and shareholder opposition to the deal, which comes amid increasing sensitivity about China's quest to secure a firmer hold on natural resources around the globe. Rio shares fell as much as 4.4 percent on doubts about whether Canberra would give the green light to the politically controversial deal before recovering slightly to close down 2.1 percent at 57.9 dollars (42.57 US). Business commentator and Rio shareholder Stephen Mayne said the mining giant's board was grilled relentlessly at the meeting about the Chinalco proposal and the 2007 purchase of aluminium maker Alcan. "The Rio Tinto board copped a comprehensive three-and-a-half-hour lashing," Mayne said. The Australian Shareholders Association questioned before the meeting why Rio went to Chinalco, rather than the market, to seek cash. "We can't have a position where an 18 percent stockholder can appoint two directors who can't be removed by an 82 percent vote," the association's Duncan Seddon told The Australian newspaper. Skinner, who was replaced by former British American Tobacco chief Jan du Plessis at the end of the meeting, sought to ease concerns about how much say the state-owned Chinese firm would have in Rio's decision-making. "It includes a robust governance framework that will enable Rio Tinto to maintain effective operational control and avoid conflicts of interest," he said. Skinner acknowledged that Rio's 38.1 billion US dollar Alcan takeover in 2007, at the height of the resources boom, was the source of Rio's debt woes. But he predicted that Alcan's assets would prove valuable in the longer term. "When the recovery in aluminium prices comes about, we believe that the real strengths and value-creating potential of the business will become apparent," he said. Shareholder Robin McIntyre was not convinced, saying she was unhappy with the way Rio was being managed. "They've made bad investments, purchases, particularly Alcan," she told ABC radio. "They've gone into a deal with Chinalco without asking the shareholders, they've just done it. We don't know whether we can get out of it or not." Rio shareholders are expected to vote on the proposed deal around mid-year at an extraordinary general meeting.