Rio Tinto’s new boss, Simon Trott, may be about to make his company’s largest shareholder an offer it’ll find hard to refuse. He and the board are mulling offering to swap a slug of the Aluminium Corporation of China’s 601600 holdings for some of the $117 billion London- and Sydney-listed mining giant’s assets, Reuters reported on Wednesday, citing four people familiar with the matter. The state-owned enterprise dubbed Chinalco has been reluctant to reduce its 11% stake that it took in 2008 as part of Beijing’s quest for energy security. That same objective could be what would make such a deal appealing.
Cutting its Chinese investor’s stake has several advantages for Rio. For starters, share buybacks could resume. Chinalco has declined to participate in them since 2020; because it owns 14% of the London-listed stock and cannot, under its 2008 agreement with the Australian government, go above 14.99%, share repurchases are effectively impossible. Restarting them could push up the price, narrow the 21% gap to Rio’s Sydney-traded securities and make the stock a more valuable acquisition currency. And regulators of potential takeover targets in Canada and the U.S., especially, may look more kindly on any bid if Chinalco’s ownership is lower.
The question is, which asset is best to negotiate with? Aluminium, iron ore and copper are all under consideration, Reuters reported. Each would be useful in securing key metals both for general purposes and also for energy security, as the metals are crucial ingredients in electric vehicles, batteries, wind turbines and other products.
Rio’s aluminium business would suit Trott best – he has already put it up for sale. That’d mean extra market heft for Chinalco. But Beijing may prefer Rio’s share of the Simandou iron ore project in Guinea, a joint venture with Chinese firms including Chinalco. Dubbed the “Pilbara killer”, a reference to Australia’s mineral-rich region it’ll compete with, the massive mine is expected to make its first shipment to China next month. Greater control, in addition to energy security benefits, could facilitate settling more iron ore imports in yuan, a sticking point in Beijing’s recent standoff with BHP. Rio’s stake could be worth at least $6 billion, Barclays analysts reckon.
China might also like to get its hands on Rio’s Oyu Tolgoi copper mine in Mongolia. Trott would probably be less keen to let that go: the red metal is a hot commodity and the driving force behind BHP’s failed bid last year for Anglo American AAL and the latter’s agreed $54 billion deal with Teck Resources TECK last month.
Whether the two sides have started talks is unclear – though China’s state-run newspaper the Securities Times spotted Trott’s boss, Chair Dominic Barton, visiting Chinalco’s headquarters in August. But if and when they do, Rio may find its biggest owner ready to barter.
Source: Reuters
