Chinalco stake in Rio Tinto approved

The Australian government has approved Chinese aluminium giant Chinalco's recent purchase of a minority stake in Anglo-Australian miner Rio Tinto, but warned the Chinese firm against buying more shares without prior approval.

State-owned aluminium Corp of China (Chinalco) has been amassing a stake in Rio, which is the subject of a $127bn (¡ê68bn) hostile takeover bid by rival BHP Billiton.

The stake-building by Chinalco reflects China's anxiety about the creation of a potential mining titan. Most of its concerns centre on iron ore, which is used in steel-making.

BHP and Rio are the world's second and third largest iron ore producers and some industry experts saw Chinalco's move as an attempt by Beijing to protect its steel sector.

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Australia's treasurer, Wayne Swan, said yesterday that Chinalco's investment could go ahead as the firm had agreed not to raise its stake above 14.99pc without receiving fresh government approval and, secondly, not to seek to appoint a director to Rio Tinto's board.

Rio Tinto is expected to unveil record profits of $5.1bn when it posts annual results as it continues to defend itself against BHP. Rio will post underlying earnings growth of around 44pc, driven by its iron ore and coal divisions plus last year's acquisition of aluminium giant Alcan.

Iron ore is expected to be up around 140pc year-on-year, with aluminium and coal operations likely to have gained by 136pc and 194pc respectively.

The figures will add to the propaganda battle between the two companies as BHP's proposal winds its way through the regulatory process.

Analysts will also be eager for news of how Rio's divestment process is continuing. The miner has pledged to sell at least $10bn of assets and has so far raised around $3bn. However, it has yet to sell Alcan's major downstream operations such as Alcan Packaging, which is expected to fetch around $5.5bn.

Meanwhile, BHP expects to grow its production volumes by 10pc over the next 12 months despite softening demand from its biggest growth driver, China, according to chief executive Marius Kloppers.

"We always say that we've grown the company at about 7pc a year in volume terms. We want to grow by another 10pc over the next 12 months," Mr Kloppers said in an interview in Australia.

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