Chinalco silence fuels talk of a Rio Tinto sell-off

CHINESE aluminium giant Chinalco is refusing to douse speculation it is looking to sell part or all of its 9 per cent stake in Rio Tinto, sending the Anglo-Australian miner's shares down for a second day. A spokesman for state-owned Chinalco, which acquired its stake in a February 2008 share raid with Alcoa, declined to commit to keeping its stake or confirm it was looking at selling out. A Rio Tinto spokesman also declined to comment. The rumours, which started circulating on Tuesday during Australian trading and picked up pace in London that night, have sent Rio's shares down 3 per cent in the past two Australian trading days. During that time, rival BHP Billiton's shares rose 1 per cent and the broader market was unchanged. Chinalco, having bought out Alcoa's stake, is Rio's biggest shareholder, with a 12 per cent stake in the miner's London-listed shares that gives it a 9 per cent interest in the dual-listed miner as a whole. While some dealers were yesterday saying that where there was smoke there was fire, analysts were not reading too much into Chinalco's unwillingness to support the share price by declaring itself a long-term holder of the stock. The biggest factor driving scepticism was that if Chinalco sold now it would crystallise a pound stg. 2.2bn loss on the shares, currently worth about pound stg. 5.8bn. Rio shares closed yesterday at $71.39, down 19c. Its London shares closed on Tuesday at pound stg. 31.72, down about half the pound stg. 60 Chinalco paid for its initial stake but more than double the pound stg. 14 it picked up its extra shares for in the rights issue. Comments by Rio chief executive Tom Albanese in Perth this month that discussions with Chinalco had reopened after relations soured in June, also make the rumours less plausible. Rio turned to Chinalco earlier this year when credit markets froze, inking an $US19.5bn rescue package that would have given the Chinese company an 18 per cent stake in Rio and up to 50 per cent of its best assets. But the relationship between the pair plummeted in June when the deal was scotched by new chairman Jan du Plessis, under pressure from shareholders, in favour of a $US15.2bn rights issue and the BHP tie-up. The BHP deal rubbed salt into Chinalco's wounds, given the main reason for taking the original stake in Rio was to have a seat at the table in BHP's since-failed $135bn bid. Chinalco has previously given some commentary on its stake, flagging its intention to take up its full entitlement in Rio's rights issue.