Sunday, June 10, 2018

Rio Tinto Saga Continues: PRC Buys More of It

BHP Billiton's bid to buy archrival Rio Tinto is a clash of the titans if there ever was one. Yet, caught out in the middle of the fray is China, with its voracious appetite for what comes out of Australia's mines. To secure its economic fortunes, the PRC is well-advised to ensure a predictable source of such supplies into the future. The BHP bid for Rio upset the applecart somewhat in that the resulting combination could potentially wield greater pricing power over China. Thus, earlier on, there were separate rumours that the sovereign wealth fund China Investment Corporation or state-owned Baosteel were weighing a bid to buy Rio to prevent such an occurrence. While that did not materialize, the similarly PRC-owned Chinalco bought a large stake in Rio to discourage BHP from pursuing Rio.

Recent news, this piece care of Bloomberg, now says that Australian regulators have allowed the Chinese to increase their stake in Rio. It could be that the regulators down under frown on the merger of BHP and Rio because (1) they're afraid of offending China, customer numero uno and/or (2) they're not keen on burgeoning monopoly control of Aussie commodities:
Rio Tinto Group, fending off a hostile $143B takeover bid from BHP Billiton Ltd., rose in Sydney trading after biggest shareholder Aluminum Corp. of China, or Chinalco, was given Australian approval to raise its stake.

Rio, which has about half its operations in Australia, rose 1.1 percent to A$122.30 at the 4:10 p.m. Sydney time close on the Australian stock exchange. Its London stock is trading 14 percent below the 6,000 pence a share price paid by Chinalco and Alcoa Inc. when they bought their 9 percent stake in February. BHP fell 0.4 percent to A$40.00.

Chinalco can raise its stake in London-based Rio, the world's third-largest mining company, to 11 percent after Australia's Federal Treasurer Wayne Swan said yesterday he had no objections to the transaction. Chinalco would have to reapply to further increase its stake and had agreed not to seek representation on Rio's board, Swan said. [Ownership without representation = protectionism?]

Chinalco was pleased it had been given approval to increase its stake ``should it choose to do so'', the Beijing-based company said in a statement yesterday.

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