UPDATE: Rio Tinto CFO: Chinalco Invest 'Absolutely Favorable'
March 26 2009 - 12:19AM
Dow Jones News
Aluminum Corp. of China's (ACH) proposed investment in
Australian mining giant Rio Tinto Ltd. (RIO.AU) is "absolutely
favorable" and essential for the long-term future of the company,
Rio Tinto's Chief Financial Officer Guy Elliott said Thursday.
"We might have had a (situation) where we couldn't have repaid
(debt maturing) in 2010, and that's made us choose the Chinalco
option," Elliott said, referring to the Chinese company as it is
usually known.
But in the unlikely event of the deal not going through, the
company still has other options, such as a bond or rights issue and
more asset sales to raise funds, he said.
Australia's competition watchdog has already approved Chinese
state-owned Chinalco taking a strategic stake in Rio Tinto, saying
the deal won't influence iron ore prices.
The Australian Competition and Consumer Commission (ACCC)
Wednesday said it won't oppose the $19.5 billion transaction that
involves Chinalco acquiring stakes in several Rio Tinto assets,
including iron ore mines, and increasing its interest in the miner
to 18% from 9%.
The Chinalco deal is still subject to approval by Australia's
Foreign Investment Review Board, which last week extended its
review of the deal by 90 days.
The strategic advantages of the deal that haven't been
highlighted are access to better intelligence on the Chinese market
and access to exploration rights in China, Elliott said. "As a
value proposition, this is absolutely favorable."
Delaying Iron Ore Settlement Beneficial
And customers in China may favor buying from a company with a
Chinese connection, he said. China is the biggest market for iron
ore, Rio Tinto's flagship product.
Elliott said he sees some benefits in delaying a settlement in
ongoing negotiations on 2009 iron ore contract prices.
The company should wait for the market to recover before
settling new term prices, he said at Asia Mining Congress 2009. "We
see some benefits in not settling immediately."
While global economic growth indicators continue to be "pretty
depressing," the stimulus measures announced by the U.S., China and
other countries are bound to support metals prices, he said.
The 2009 contract year will begin April 1, but none of the big
three miners - Rio, Brazil's Companhia Vale do Rio Doce (RIO) and
Australia's BHP Billiton Ltd. (BHP.AU) - have yet concluded price
negotiations with steel producers.
Steel producers including key Chinese mills have been asking for
sharp iron ore price reductions of up to 40%-50% amid falling steel
prices and slowing demand.
-By James Campbell, Dow Jones Newswires; 65 6415 4084;
james.campbell@dowjones.com