Neil Collins

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A chink in the Chinalco armour

May 26, 2009

Xiong Weipeng has been speaking to Caijing magazine. Perhaps he was speaking in Mandarin, which might explain why something seems to have been lost in translation.

 Xiong is president of Chinalco, the Chinese state-owned aluminium group which is trying to muscle in on Rio Tinto, doubling its holding to 18 per cent and taking big minority stakes in its best mines.

Plenty of us Rio shareholders don’t like this plan one bit, and intend to try and vote it down when we get the chance, probably in July. Now Xiong seems to have noticed. He’s reported as saying that Chinalco is discussing possible adjustments to the deal “in line with changes to market conditions”.

Well, it’s a start. He then rather spoils the effect by denying that Chinalco would limit its new holding to 15 per cent. Clearly, shareholders must not ease the pressure on the Rio board to make it plain to the Chinese that there are other options.

The appetite for rights issues to replace debt remains strong, while credit conditions are continuing to ease, making the refinancing of the 9 billion dollar loan due in October less daunting. The most attractive possibility is some sort of link-up with BHP Billiton. A full bid might be more than the amour propre of the Rio board could stand, but there is huge value to be unlocked by closer co-operation in the Australian desert, as Sam Walsh, Rio’s iron man, admitted last week. He describes the Chinalco deal as “evolving.”

It’s clear that Xiong realises he has a problem with the sweetheart deal as it currently stands. Perhaps some Mandarin-speaking shareholder might tell him why 18 per cent, especially on these terms, is a Chinese burn too far.