UPDATE: Rio-Chinalco Deal Won't Alter Escondida Agreement
February 12 2009 - 8:55AM
Dow Jones News
Rio Tinto PLC's (RTP) $19.5 billion agreement with Aluminum
Corp. of China would see the Chinese company take a 15% stake in
the Escondida copper mine but won't alter the participant agreement
with BHP Billiton Ltd. (BHP), a Rio Tinto spokeswoman said.
BHP Billiton owns 57.5% of the mine and has pre-emptive rights
to buy Rio Tinto's stake. Rio controls 30% of Escondida but is
selling half of that to Chinalco under terms of a broad deal
announced Thursday.
"We have structured it to ensure it fully respects all our
obligations under the participant agreement," a Rio Tinto
spokeswoman said Thursday.
This removes what many analysts had expected to be a stumbling
block to Rio's deal with Chinalco, which values the proposed
Chinese stake in Escondida at $3.38 billion - over a quarter of its
planned total investment in the Anglo-Australian miner's assets. If
BHP Billiton's preemptive rights were triggered, it would almost
certainly be interested in buying Rio's Escondida stake.
The mine, located in Chile's Atacama Desert, produces around
8.1% of world copper and almost a quarter of Chile's output of the
metal. Although production has been falling due to declining ore
grades, persons familiar with the matter said there is vast
potential for mine development in the unexplored surrounding
deposits.
"Escondida is one the crown jewels of Rio Tinto's asset
portfolio," said Calyon Credit Agricole analyst Robin Bhar. "For
the two parties, it's a great deal: China needs the resources and
Rio needs the money," he added.
The Chilean government has a very positive attitude toward
foreign investment in the country's mining sector, including China,
with whom it has a free-trade agreement. Its state-owned miner
Codelco, the world's biggest copper producer, is working with
China's Minmetals to develop new business and exploration
opportunities in Latin America and in Africa.
Minmetals has traditionally been a trading vehicle for the
Chinese in the metals markets, while Chinalco is viewed as the
entity for investment in assets.
A Japanese consortium made up of Mitsubishi Corporation (60%),
Mitsubishi Materials (20%) and Nippon Mining & Metals Company
(20%) holds in total a 10% stake in Escondida, while International
Finance Corporation, a division of the World Bank, has the
remaining 2.5% interest.
Company Web site: www.riotinto.com
-By Jeffrey Sparshott, Dow Jones Newswires; +44 (0)207 842 9347;
jeffrey.sparshott@dowjones.com