BHP May Help Rio in Alternative Fund Plan, UBS Says

May 14 (Bloomberg) -- BHP Billiton Ltd., the world’s largest mining company, may offer to help Rio Tinto Group raise capital as an alternative to its proposed $19.5 billion investment deal with Aluminum Corp. of China, UBS AG said. The two companies may save as much as $10 billion by combining their iron-ore assets in the Pilbara region of Western Australia state through a merger or joint venture, Glyn Lawcock, a Sydney-based analyst at UBS, wrote today in a report. “BHP could propose to assist in underwriting a substantial rights offering for Rio, and in exchange propose an iron-ore joint venture in the Pilbara,” Lawcock wrote. The combination would also have “better control over pricing, particularly from Australia to Asia,” he wrote. London-based Rio is trying to convince investors and regulators that the accord signed in February with Chinalco, as the state-owned company is known, which includes selling stakes in some assets and a convertible-bond sale, is the best way to slash the company’s $38.9 billion of debt. Rio advanced 91 pence, or 3.6 percent, to close at 2,594 pence in London, erasing an earlier drop. The Australian shares slumped 12 percent in Sydney trading today, the most in five weeks, while the U.K. stock tumbled 11 percent yesterday. BHP added 0.1 percent to 1,392 pence today in the U.K. capital. ‘Best Way Forward’ Melbourne-based BHP, which scrapped a hostile bid for Rio in November, citing the company’s debt, falling commodity prices and regulatory hurdles, wouldn’t match Chinalco’s proposal as it was unlikely to offer convertible bonds on the same terms, Lawcock wrote. Chinalco will buy $7.2 billion of convertible bonds, to take its stake to 18 percent, and pay $12.3 billion for holdings in Chilean, U.S. and Australian projects. The Chinalco deal is “the best way forward” for Rio and Chairman Jan du Plessis is meeting investors in the U.K. this week to listen to their views, spokesman Nick Cobban said today by phone. He declined to comment on the iron-ore venture. BHP spokesman Ruban Yogarajah declined to comment in an e-mail response to questions. Australian iron-ore producers, of which Rio and BHP are the two largest, may supply 75 percent of imports into China this year, Goldman Sachs JBWere Pty said this month. China is the largest consumer of the steelmaking raw material. Australia’s Foreign Investment Review Board is scheduled to make a recommendation to the country’s Treasurer Wayne Swan by June on whether the Chinalco accord should be approved. Rio will then put a proposal to investors at meetings in Australia and the U.K. Du Plessis said last month he wouldn’t table a proposal that would be voted down by shareholders. In February Rio’s former chairman Paul Skinner said the company had studied a rights issue and could have raised as much as $10 billion from the sale. To contact the reporter on this story: Brett Foley in London at bfoley8@bloomberg.net; Roger Neill in London at rneill3@bloomberg.net.