UPDATE: Rio Tinto Plans US$19.5 Billion Deal With Chinalco
February 11 2009 - 8:18PM
Dow Jones News
Rio Tinto Ltd. (RTP) is in the process Thursday of finalizing a
US$19.5 billion deal with Aluminum Corp. Of China, Chinalco Deputy
General Manager Lu Youqing told Dow Jones Newswires in
Beijing..
Lu declined to give further detail and said the deal hasn't yet
been signed.
"We will hold a joint press briefing with Rio later today in
Australia," Lu said.
One person familiar with the deal said it includes a US$7.2
billion convertible bond issue that would see the Chinese group's
stake in Rio rise from its current 9%, which it holds in a joint
venture with Alcoa Inc. (AA), to under 20%.
The person said that in its current form the transaction will
see Chinalco take a minority stake in a number of Rio Tinto assets
including the Hamersley, Escondida, Grasberg, La Granja, Weipa,
Yarwun and Boyne operations.
Chinalco would initially take one seat on the Anglo-Australian
miner's board and would gain another at a later stage, the person
said.
The deal will allow Rio Tinto to pay down some of the US$38.9
billion in debt it is carrying as a result of its 2007 purchase of
aluminum producer Alcan, with the miner due to make a repayment of
US$8.9 billion in October and another of US$10 billion in October
next year.
The Anglo Australian miner had planned to pay down its debt
through a mixture of free cashflow and asset sales, but with
sagging commodity prices hitting cashflow and buyers for assets
hard to find, the miner began considering other alternatives
including a deal with Chinalco and a major rights issue.
Another person familiar with the situation said the value of the
deal should be welcomed by Rio Tinto shareholders.
"What it will do is provide the solution to the balance sheet
with a handsome consideration," the person said.
"It does not compromise Rio Tinto's control in any way at all,
but what it does do is provide an enormous bonus, which is a
relationship with the world's fastest growing market for
commodities."
Winning Australian Government approval will be crucial to the
deal and another person familiar with the situation said Rio Tinto
executives had sounded out lawmakers in meetings in Canberra last
week.
Chinalco teamed up with Alcoa in February last year to pay
US$14.1 billion for a 12% stake in Rio Tinto's London-listed stock,
giving it a stake of about 9% in the dual-listed group.
In August last year Australian Treasurer Wayne Swan gave
Chinalco approval to up its stake in Rio Tinto's London-listed
stock to 14.99%, equivalent to 11% of the total group.
Chinalco gave an undertaking it would not raise its stake beyond
this level without seeking approval from the Australian government
and would not seek a board seat while its stake was under 15%.
Rio Tinto Thursday confirmed it was in negotiations with
Chinalco and said a further announcement would be made shortly.
-By Alex Wilson and Chen Juan, Dow Jones Newswires;
61-3-9671-4313; alex.wilson@dowjones.com
(Rachel Pannett in Canberra contributed to this story)