Rio tips strong take-up of local right

RIO Tinto expects a strong take-up of the local portion of its mammoth $US15.2 billion ($19bn) rights issue following a 97 per cent take-up of the rights in its London-listed stock. Rio's spurned Chinese suitor, Chinalco, took up its rights to maintain the largest shareholding in the group at 9.3per cent. The decision leaves open its options to agitate for changes in Rio's management and board following the collapse last month of its $US19.5bn bid for a bigger stake in Rio and interests in its key projects. Rio rejected Chinalco's rescue package in favour of the rights issue and a deal to merge its West Australian iron ore assets with those of BHP Billiton. A Chinalco spokesman said yesterday the decision to take up its rights was economically rational because it prevented the dilution of its ownership. "Chinalco believes in the long-term prospects of the industry and will continue to explore opportunities to advance its strategic objectives," the spokesman said. "Chinalco will, as the company's current largest single shareholder, continue to monitor developments at Rio." The company has remained silent on whether it would agitate for board and management changes at Rio. A spokesman said the company was undecided on whether it would try to boost its stake through a bookbuild to sell the remaining 15.88 million new London-listed shares not taken up in the rights issue. The take-up of the London stock was similar to that of HSBC in its British-record pound stg. 12.5bn ($25.5bn) issue in April. Rio announced the 21-for-40 rights issue on June 5, with shareholders able to buy new London shares at pound stg. 14 and new Australian shares at $28.29. Rio's shares yesterday closed 15c higher at $51.75. Rio's rights issue is the world's fifth biggest and the biggest by a mining company. The proceeds will be used to pay down part of Rio's debt of almost $US40bn, which it mainly used to take over Alcan in 2007. The rights could also be traded, meaning shareholders not prepared to put in more cash to buy shares were able to sell them. A Rio spokesman said the company was not expecting any surprises in the Australian take-up, results of which would be released today. Funding for Chinalco's $US1.46bn purchase of new shares under the rights issue will be provided by China's fourth and fifth-largest banks, Agriculture Bank of China and China Development Bank. Chinalco's listed subsidiary Chalco issued more shares on the Shanghai Stock Exchange this week, raising 10 billion yuan ($1.8bn) for two domestic aluminium projects. The rights issue comes as Rio finalises talks with Chinese steel mills on the contract iron ore price for the coming year. Reports out of China suggest the China Iron & Steel Association, which has been leading the increasingly fraught negotiations, has buckled and will now accept a similar price cut to that agreed by Japanese and Korean mills. Hebei Iron & Steel Group vice-president Tian Zhiping said steelmakers aimed to end annual contract iron ore talks by the end of this month and may consider trimming price cut demands. "Some of the annual contracts, which ended on June 30, still have a one-month grace period," Mr Tian said. The mills, which had demanded a cut of as much as 45 per cent, are ready to discuss a reduction of between 33 and 40 per cent, according to a report this week in Caijing magazine. Umetal Research Institute analyst Hu Kai said Rio, the world's second-biggest exporter of the ore, was unlikely to budge from the 33 per cent drop it agreed to in May with Japanese steelmakers. "Rio is more willing to sell to the spot market now because Chinese steelmakers have lost their credibility in honouring the long-term contracts," Mr Hu said. "Some mills have started to buy ore at a provisional 33 per cent price cut (level)." Spot prices have gained 20 per cent to $US78.20 a tonne since Rio settled contract prices with Japanese steel mills on May 26. The contract price for the year to March 31 accepted by mills in Japan, Korea and Taiwan is about $US61 a tonne, excluding the shipping cost. Additional reporting: Bloomberg