Alcoa, Aluminum Corp. of China buy 12 percent of Rio Tinto, countering BHP Billiton

SHANGHAI, China - Alcoa Inc. and Aluminum Corp. of China say they plan to buy 12 percent of London-listed Rio Tinto PLC in a deal said to be worth US$14 billion (?9.5 billion). The deal was the biggest foreign investment yet by a Chinese company, Aluminum Corp. of China said Friday, and appeared meant to block a bid for Rio Tinto by Anglo-Australian mining giant BHP Billiton. Alcoa said it contributed US$1.2 billion (?810 million) to the investment. Aluminum Corp. of China, the country's biggest maker of both aluminum and alumina, said it made its purchase through a Singapore-based wholly owned unit called Shining Prospect Pte. The two companies said they did not "currently intend to make an offer for Rio Tinto PLC," though they reserved the right to participate in an offer within the next six months. "Our acquisition of a significant strategic stake in Rio Tinto PLC today reflects our confidence in the long-term prospects for the rapidly evolving global mining sector," Xiao Yaqing, president of Aluminum Corp. of China, said in a statement. Rio Tinto became the world's biggest producer of aluminum and bauxite with its US$39.7 billion (?28 billion) purchase last year of Alcan, based in Montreal, Canada. "This unsolicited development, of which we had no prior notice, reinforces our view of the long-term value of Rio Tinto," Rio Tinto Chairman Paul Skinner said. "In line with our long-standing strategy, we shall continue to focus on operating our many world-class assets to maximize value and prospects for all shareholders." State-owned Aluminum Corp. of China owns a 38.56 percent stake in listed unit Chalco, whose shares are traded in New York, Hong Kong and Shanghai. Chalco's shares rose 11.9 percent in Hong Kong on Friday. They fell 2.5 percent in Shanghai, where the market closed before the deal was announced. Aluminum Corp. of China said its share of the US$14.05 billion purchase was partially funded by the China Development Bank, a Beijing-based bank set up to finance government projects. The purchase followed rumors that some Chinese entity might try to block BHP Billiton's unsolicited takeover bid for Rio Tinto. However, most of that speculation had centered on China's steel industry, which has a critical interest in the world iron ore trade. Xiao said the Rio Tinto purchase demonstrated its belief in the company's fundamental value, and underlined his company's "determination to increase and diversify its exposure to the sector and to be well-positioned within this changing industry landscape." Like many major Chinese industry groups, Chalco has been rapidly expanding internationally, acquiring assets in Australia, Canada, Peru, Fiji and Guinea. Pittsburgh-based Alcoa, the world's third-largest aluminum maker, also has been expanding in fast-growth markets such as Brazil, China and Russia. "We have long believed that Rio Tinto has a world-class portfolio of assets and is very well positioned to prosper in the current mining cycle," Alain Belda, Alcoa's chairman and chief executive officer said in a statement. Belda described the partnership with Chalco as one that would "allow us to mutually benefit from developments in the sector." Rio Tinto has rejected BHP Billiton's offer for buy Rio Tinto for about US$130 billion (?87 billion) in a share swap. Britain's takeover regulator has given BHP Billiton until Feb. 6 to either formalize its proposal to buy Rio Tinto or say it is not interested. A BHP Billiton spokeswoman, Samantha Evans, said the company had no comment on the Rio Tinto stake purchase by Alcoa and Chalco. Alcoa last year sold its nearly 7 percent stake in Chalco for US$2 billion (?1.3 billion), a stake acquired for only US$200 million when the Chinese company made its initial public offering in 2001.