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Chinalco says Rio stake not last overseas buy
2008-02-22
Chinese aluminum giant Chinalco, which this year led a $14 billion acquisition of 12 percent of Rio Tinto (RIO.AX)(RIO.L), said in remarks in an influential magazine that it will continue to seek acquisitions abroad. But Chinalco President Xiao Yaqing left the company's options open regarding its next move on Rio Tinto, the world's second-biggest mining company, saying it would depend on circumstances. Market speculation has swirled over whether Chinalco -- aided by the government or otherwise -- might enter into a bidding war against BHP Billiton (BHP.AX)(BLT.L) for Rio. In an interview with China's influential Caijing magazine published on Friday, Xiao was quoted as saying the Rio stake acquisition was purely a commercial decision and the next move would depend on circumstances. "Rio is our groundbreaking deal in top-tier overseas mergers and acquisitions, but it will not be the last one," he said. Chinalco's joint acquisition with U.S. aluminum producer Alcoa Inc (AA.N) is seen as a hindrance to BHP Billiton's takeover bid for Rio, putting a significant obstacle in the path of a merger that would create the world's second-biggest company but also crimp China's buying power over iron ore supplies. "As Rio's largest single shareholder, we and Alcoa of course have a say and we will certainly protect our interests," Xiao told the magazine. Analysts said state-owned Chinalco and its U.S. partner were in no rush to make their next move, which Xiao's comments in Caijing seemed to confirm. PROFIT REQUIREMENTS Xiao said Chinalco had not held any further talks with Rio or BHP. "We will only agree on any proposal that fulfils the profit requirements of Chinalco and Alcoa," he added. Chinalco, which controls China's largest alumina and aluminium producer, Aluminum Corp of China Ltd (2600.HK) (601600.SS)(ACH.N), and Alcoa jointly purchased 12 percent of Rio's London-listed shares, or 9 percent of the total equity of the firm, on January 31. Chinalco and Alcoa reserve the right to counterbid for Rio and sources familiar with the situation have said there was more funding available from China Development Bank, a state-run lender that backed the initial foray into the market and whose mandate is to support government initiatives. The two firms built their surprise stake in a move that was perfectly timed to stymie BHP's bid, forcing it to sweeten its offer in what would be the world's biggest ever mining merger and second-largest in any sector. Xiao said Chinalco's goal was profit growth. "If prices rise very high, we can sell Rio shares," he said. BHP and Rio are two of the world's three big suppliers of iron ore, along with Vale (VALE5.SA) of Brazil, and a tie-up between them would leave China in a weaker position for buying the iron ore needed for its steel sector, the world's biggest. BHP is offering Rio shareholders 3.4 BHP shares for one Rio share, a slightly sweetened deal from a three-for-one offer that was tentatively put forward late last year. Analysts say BHP's all-stock offer is designed to weather market fluctuations, since BHP and Rio shares often move in tandem, and it may even become more attractive when the market falls. But that could be undermined by Chinalco's willingness to pay cash and a premium to the market. For a story on Chinalco possibly eyeing a larger stake in Rio, please click on (Reporting by Alison Leung; Editing by Edmund Klamann)
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