Chinalco takes full part in Rio Tinto's rights offer

RIO Tinto's spurned Chinese suitor Chinalco has taken up its allotment in the company's $US15.2 billion rights issue, maintaining the largest shareholding in the group at 9.3 per cent and leaving open its options to agitate for changes in Rio's management and board following the collapse of its $US19.5 billion deal last month. The Chinese mining group was hoping to use an expanded stake in Rio and board representation at the Anglo–Australian group as a platform to create a major global diversified mining business. Instead the state-owned group must now watch as Rio and its former rival BHP Billiton try and execute their plan for an iron ore join joint venture that will create the world’s largest producer of the mineral. “Chinalco can confirm that it has taken up all its rights in Rio Tinto plc,” a spokesperson for the company said. “This was an economically rational decision as it prevented the dilution of our ownership in Rio. Chinalco believes in the long-term prospects of the industry and will continue to explore opportunities to advance its strategic objectives.” China’s fourth and firth largest banks Agriculture Bank of China and China Development Bank will provide Rio with funding for the $US1.46 billion purchase, Caijing website reported. Chinalco denied this week it was in talks with another mining giant, Anglo-American, which is trying to bring in a large investor - probably from China or the Middle East – in an effort to ward off an effective take-over attempt by the smaller Swiss group Xstrata. “Chinalco will, as the company’s current largest single shareholder, continue to monitor developments at Rio,” the spokesman said. But the Chinese company has remained silent on whether it will use its large stake to agitate for changes at Rio whose board and management under chief executive Tom Albanese has been widely criticised. Their first mistake was buying Alcan at the top of the market, which was followed by the planned deal with Chinalco at the bottom of the market many saw as giving away too much control. Rio then compounded this by continuing to support the Chinalco deal in the face of near-universal criticism from shareholders. It was a strategy which saw chairman Paul Skinner’s planned successor Jim Leng decline to take up his post and a subsequent backflip by eventual chairman Jan du Plessis that finally nixed the Chinalco deal. Chinalco’s listed subsidiary Chalco this week issued more shares on the Shanghai Stock Exchange, raising 10 billion yuan for two specific domestic aluminium projects. No mention was made in the statement on the raising about the company’s stalled $3 billion bauxite development in Aurukun in north Queensland. Chinalco’s decision comes as China’s steel makers have backed down on their bid for iron ore price cuts of more than 40 per cent on last year’s benchmark. The group is now in talks with Rio, BHP and Brazil’s Vale about a price cut of up to 33 per cent – in line with that accepted by Japanese and Korean steel mills. Rio Tinto said today that there had been a 96.97 per cent take up of the UK portion of its $US15.2 billion ($18.7 billion) rights issue. Shareholders in Rio's London-listed stock were offered 21 new shares for every 40 held at a price of ?14. The miner did not give any detail of the acceptance level in the parallel Australian rights issue, which also closed yesterday and saw shareholders offered stock at $28.29. The high take up rate in London, where the majority of the dual-listed group's shares reside, guarantees Rio will raise the funds it needs to pay down its debt, a move analysts have said should improve market sentiment towards the miner. source:www.theaustralian.news.com.au