Rio’s charm offensive

May 18, 2009

REUTERSJan Du Plessis, the man parachuted into the chair at Rio Tinto from British American Tobacco (they’ve so much in common), has spent a day on a charm offensive with the big shareholders in the mining group.

This Chinese deal is marvelous, he’s telling them. Not only do we get a fine price for selling what are merely minority, passive stakes in our mines, but just think of what we’ll be able to dig up in China with a powerful local to open the doors for us.

Besides, as he may not be emphasising with quite the same vigour, we can’t renegotiate the deal to sell them this slug of convertible loan stock, because they keep saying, rather publicly, that they’d walk away if we proposed doing so. Don’t even think of replacing our convertible with a straight bond.

The Chinese are even more sensitive about loss of face than the Rio directors, and it’s never clever to upset your biggest customer. Yet a compromise is desperately needed here, even if it costs the job of one or two of du Plessis’ colleagues.

Conditions in commodities have changed radically since the terms were struck. In addition, the rights issue window is wide open (even if the brokers at Liberium believe it is bottom of the board’s list of options) but it won’t necessarily stay open for long.

As Liberium point out, time is also running out for BHP Billiton to revive the tie-up it wanted last year when it bid for Rio, and caused the board paralysis which has led the latter to its current pass.
On Thursday the Chinese deal won clearance from the U.S. authorities, although it hardly affects the U.S., and the betting must be that the Australians follow suit soon. On past form, the Aussies will talk tough, demand some marginal concessions, and wave it through.

The outcome is likely to rest in the hands of the Rio shareholders when they vote, probably in July. It is the biggest test yet of whether they will really vote down a deal that damages the value of their investment, or whether they too will back down for some token gesture.

That’s the way to bet, which is why du Plessis is being so charming this week.

(Neil Collins is a shareholder in Rio Tinto)
(Edited by David Evans)

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