Chinalco, Anglo may join forces

CHINALCO’s interest in resources acquisitions and Anglo American’s early moves into China back up the speculation that the two companies could engage in some form of partnership. Chinalco is the Chinese state-owned resources group tipped as a potential suitor to rescue Anglo American from the unwelcome advances of Xstrata, or as a co-investor in Anglo’s MMX Minas- Rio iron-ore project in Brazil. Chinalco and Anglo American have declined to comment on the speculation that, after Anglo’s board rejected Xstrata’s all-share merger proposal last month, Anglo has been seeking a white knight in either Chinalco or Brazilian iron-ore giant Vale. Vale, though, has said publicly that it is not seeking acquisitions at present. Anglo American has already developed some links with China. It has sold its stake in Shenhua Energy Company but retains other exploration projects in the country in a range of minerals. In November 2007, Anglo signed a memorandum of understanding with the China Development Bank to develop projects jointly in China and elsewhere. The bank funded the purchase in 2006 of a 1,13% stake in Anglo by China Vision Resources, the investment vehicle of Chinese billionaire Larry Yung. China Development Bank was also the financier of Chinalco’s initial purchase of a stake in Rio Tinto, at a cost of $14bn. Although Anglo is a geographically diversified group, it still has substantial interests and influence in Africa, which could be part of its attraction for Chinalco. Chinese companies have been active investors in African resources in the past few years and have affirmed their commitment to keep investing even while western companies have contracted in the market squeeze. According to the recent Southern African Resources Watch report, The Impact of the Global Financial Crisis on Mining in Southern Africa, Chinese trade with Africa rose to $107bn last year from $11bn in 2000. Pieter Snyman, China-Africa specialist at the Gordon Institute of Business Science, said in the report that “a decision to invest in Africa was taken about 10 years ago at the highest level in Beijing. China will have to move forward in its sourcing of natural resources and also agricultural land for food production in order to continue its high growth rate,” he said. Chinalco last week took up its full entitlement in Rio Tinto’s rights issue to maintain its stake at 9%, at a cost of about $1,5bn. Earlier this year, Chinalco had planned to take a $19,5bn investment in Rio Tinto, but the move was unwelcome to Rio’s shareholders. In a presentation with Rio Tinto executives on their proposed tie-up in February, Chinalco president Xiao Yaqing said the company was “seeking diversification across products and regions in line with its strategy of becoming a global diversified resources company”. Chinalco’s resources portfolio is in aluminium, copper and titanium. The only crossover with Anglo’s asset base is in copper. Although it has stated a strategy of becoming globally diversified, most of Chinalco’s operations are still in China, with others in Australia, Saudi Arabia and Peru. In Africa, it is active only in Guinea, where it is believed to be looking for bauxite opportunities. Chinalco was established in 2001 and its 38,6%-held subsidiary, Aluminium Corporation of China, is listed in Hong Kong, New York and Shanghai. It also holds 49% of Yunnan Copper. source:www.businessday.co.za