Alcan owner Rio Tinto backs down over 12bn Chinese investment

Anglo-Australian group Rio Tinto’s board had been promoting the investment by Chinalco, the Chinese state-owned mining group, which would have been China’s largest investment in a foreign firm.

However, Rio Tinto’s board today rejected the deal, in which Chinalco would have doubled its stake in Rio Tinto to 18%, following pressure from its shareholders.

Rio Tinto will pay Chinalco a break fee of $195m to withdraw from the transaction, which was first agreed by the two companies’ boards in February but which has been dogged by shareholder criticism since.

Instead, Rio Tinto is hoping to raise $15.2bn through a rights issue.

In an open letter to shareholders, Rio Tinto chairman Jan du Plessis revealed that the board had attempted to revise the terms of the deal with Chinalco as a response to shareholder concerns over the deal, but without success.

“As a result the boards have withdrawn their recommendations for the original transaction and Rio Tinto has terminated the agreement,” he said.

Chinalco president Mr Xiong said in a statement that his company was “very disappointed” by Rio Tinto’s decision.

“Chinalco will continue to explore opportunities to advance its strategic objectives and in the meantime will monitor developments at Rio Tinto as the company’s current largest single shareholder,” he said.

In a twist to today’s news, however, Rio Tinto and BHP Billiton, another mining behemoth which tried to buy Rio Tinto last year but withdrew its offer in November, this morning announced a joint venture on iron ore production in west Australia.

Chinalco’s Xiong said: “We note the announcement of the joint venture in the Pilbara between Rio Tinto and BHP Billiton and will continue to monitor developments in relation to this project.”

Rio Tinto currently has almost $40bn of debt, much of which is related to its $38bn takeover of Canadian mining group Alcan in July 2007.

The deal brought the $6bn Alcan Packaging business with it, and Rio Tinto has been trying to sell the business ever since.

Both Australian group Amcor and US group Bemis have this year revealed talks to buy parts of the Alcan Packaging empire.

Popular Articles